AAI Limited, in the matter of AAI Limited
[2012] FCA 1190
•11 October 2012
FEDERAL COURT OF AUSTRALIA
AAI Limited, in the matter of AAI Limited [2012] FCA 1190
Citation: AAI Limited, in the matter of AAI Limited [2012] FCA 1190 Parties: AAI LIMITED (ACN 005 297 807) File number: NSD 1309 of 2012 Judge: EMMETT J Date of judgment: 11 October 2012 Legislation: Insurance Act 1973 (Cth) ss 17B, 17C(2)(c) Date of hearing: 11 October 2012 Place: Sydney Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 26 Counsel for the applicant: Mr IM Jackman SC Solicitor for the applicant: Allens APRA representative: Mr Clayton
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1309 of 2012
AAI LIMITED (ACN 005 297 807)
Applicant
JUDGE:
EMMETT J
DATE OF ORDER:
11 OCTOBER 2012
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.In relation to each of the following:
(a)The proposed scheme for the transfer of the insurance business of Suncorp Metway Insurance Ltd (ACN 075 695 966) (SMIL) to AAI Limited (ACN 005 297 807) (AAI);
(b)The proposed scheme for the transfer of the insurance business of GIO General Limited (ACN 002 861 583) (GIOG) to AAI;
(c)The proposed scheme for the transfer of the insurance business of Australian Alliance Insurance Company Limited (ACN 006 471 709) (Australian Alliance Insurance) to AAI; and
(d)The proposed scheme for the transfer of the insurance business of Australian Associated Motor Insurers Limited (ACN 004 791 744) (AAMI) to AAI,
the need for the applicant to comply with s 17C(2)(c) of the Insurance Act 1973 (Cth) is dispensed with provided that the applicant complies with Order 2 below.
2.The applicant carry out the steps set out in paragraphs 23 to 51 of the affidavit of Karen Taylor affirmed on 8 October 2012.
3.During the course of January and February 2013, the applicant is to cause a notice, in substantially the form set out in annexure “KT5” to the affidavit of Karen Taylor affirmed on 8 October 2012, to be sent by email to those policyholders of SMIL, GIOG, Australian Alliance Insurance or AAMI:
(a)whose email address has been collected by the Suncorp Group in connection with its policy administration functions; and
(b)who, at the time the email is sent, hold a policy issued by SMIL, GIOG, Australian Alliance Insurance of AAMI, other than:
i. those policies that are due to be renewed between 13 December 2012 and 15 March 2013;
ii. policies issued by GIOG under the “AMP’ or ‘Resilium’ brands; or
iii. compulsory Third Party Insurance policies issued by SMIL or AAMI in Queensland,
in each case to the most recent email address disclosed in the Suncorp Group’s records.
4.The applicant pay the costs of the Australian Prudential Regulation Authority of this application as taxed or agreed.
5.These orders be entered forthwith.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1309 of 2012
AAI LIMITED (ACN 005 297 807)
Applicant
JUDGE:
EMMETT J
DATE:
11 OCTOBER 2012
PLACE:
SYDNEY
REASONS FOR JUDGMENT
AAI Limited (AAI) has applied to the Court by interlocutory application, filed on 8 October 2012, for an order under s 17C(5) of the Insurance Act 1973 (Cth) (the Insurance Act) in relation to proposed schemes for the transfer to AAI of the insurance businesses of four of its wholly owned subsidiaries. Section 17B(1) of the Insurance Act provides relevantly that no part of the insurance business of a general insurer may be transferred to another general insurer, or amalgamated with the business of another general insurer, except under a scheme confirmed by the Federal Court. Section 17C(2)(c) relevantly provides that an approved summary of the scheme must be given to every affected policyholder. Section 17C(4) provides that an affected policyholder is entitled, on the person’s request, to be provided by the company with one copy of the scheme free of charge. However, s 17C(5) provides that the Federal Court may dispense with the need for compliance with s 17C(2)(c) in relation to a particular scheme if it is satisfied that, because of the nature of the scheme or the circumstances attending its preparation, it is not necessary that that paragraph be complied with.
The application by AAI is for dispensation with the need to give to every affected policyholder an approved summary of the proposed schemes. Four subsidiaries of AAI are involved in the proposed schemes. They are Suncorp Metway Insurance Limited (SMIL), GIO General Limited (GIOG), Australian Alliance Insurance Company Limited (Australian Alliance Insurance), and Australian Associated Motor Insurers Limited (AAMI). I shall refer to the four companies as the Transferring Insurers.
Each of the Transferring Insurers is authorised by the Australian Prudential Regulation Authority (the Authority), to carry on insurance businesses in Australia. Each is referred to by the Authority, for prudential purposes, as a Level 1 company. Each of the Transferring Insurers is a part of the Suncorp Group Limited group of companies (the Suncorp Group), the ultimate parent of which is Suncorp Group Limited. Suncorp Insurance Holdings Limited is a subsidiary of Suncorp Group Limited and AAI is a subsidiary of Suncorp Insurance Holdings Limited. Suncorp Insurance Holdings Limited is a non-operating holding company authorised by the Authority and is the head of the general insurance group which, for prudential purposes, is referred to as the Level 2 Group.
The Suncorp Group is one of the largest general insurance groups in Australia and has approximately 10.5 million current policies. More than 10 million of those are issued by the Transferring Insurers. The insurance business of the Suncorp Group is divided into two segments. The first, personal insurance, provides a wide range of motor, home and other personal insurance products for consumers. The second, commercial insurance, covers a wide range of business insurance products for small and medium-sized businesses, as well as corporate customers, including property insurance, liability, commercial motor, marine, construction, professional and financial risks, workers’ compensation insurance and compulsory third party insurance.
The Transferring Insurers operate under a range of different brands and trademarks within Australia. However, they are administered, in effect, as a single group. The Suncorp Group proposes to undertake an internal restructure of its general insurance operations in order to reduce the number of business entities that operate in, and are regulated in, Australia. The proposed consolidation is intended to align the legal position with the existing operational position of its general insurance group, and thereby improve efficiency. The present intention is that the transfers will be implemented on 1 July 2013. If the schemes are confirmed by the Court, Suncorp Group’s Australian operations will be consolidated into one entity, namely, AAI, thereby reducing the number of authorised general insurers within the group from five to one.
The essential requirement for the making of an order of dispensation under s 17C(5) of the Insurance Act is that the Court must be satisfied that it is not necessary to comply with the requirement to give an approved summary of the scheme to every affected policyholder because of the nature of the scheme or the circumstances attending its preparation. AAI seeks dispensation of the requirement in its entirety. That is to say, it seeks that the Court allow it to apply for confirmation of the schemes, notwithstanding that an approved summary of the schemes will not have been given to any of the affected policyholders, except to the extent to which I shall refer.
The phrase “nature of the scheme” suggests attributes or facts relating to the structure or other elements or characteristics of the scheme that might justify dispensation from the relevant requirement. The discretion to grant a dispensation under s 17C(5) is a general one. The provision does not specify criteria that the Court is to apply in determining whether the nature of the scheme or the circumstances attending its preparation warrant the making of an order.
The range of potential matters to which the Court may have regard is therefore fairly wide. The context against which the phrase “nature of the scheme” is to be construed includes the structure and characteristics of the scheme. The granting of dispensation under s 17C(5) is a matter of some importance and is not to be taken as a matter of course. However, the express power is conferred on the Court, and there is no reason why it should not be exercised in appropriate circumstances.
AAI proposes to take steps that will bring the proposed schemes to the attention of millions of its policyholders. It contends that, if there were valid grounds for opposing the schemes, it is highly unlikely that those grounds would not be picked up by at least one of the policyholders who will receive notice of the proposals. It is also significant that the Authority supports the present application.
Several structural matters and characteristics of the proposed schemes, relevant to their nature, are relied upon by AAI. As I have said, each of the Transferring Insurers is a wholly owned subsidiary of AAI and much of the operational arrangements, including reinsurance for each of the Transferring Insurers, are presently undertaken through AAI.
Under the capital management plans proposed, each Level 1 company will be capitalised commensurate to risk, and will hold capital in its own right to enable Level 1 requirements of the Authority to continue to be met. AAI holds any surplus capital on behalf of the whole of the domestic insurance Group. The interests of affected policyholders will, according to the actuarial evidence before me, remain adequately protected following implementation of the proposed schemes. The capital position of AAI will remain strong.
In a preliminary actuarial report of 28 September 2012, Mr Tim Andrews, who is a fellow of the Institute of Actuaries of Australia, employed by Finity Consulting Pty Limited, has expressed the view that there will be no material changes to the risk profile of any of the Transferring Insurers besides those that are captured by extra prudential capital requirements. The post-transfer insurer, namely, AAI, with the business of the four Transferring Insurers, will be larger and more diversified than any of the individual Transferring Insurers before the transfer.
The solvency position following the proposed schemes, as measured by the Authority’s minimum requirements, will be better than the pre-scheme position for all of the Transferring Insurers, although AAI itself will be in a slightly worse position on one view of the matter. However, the present policy holders of AAI would benefit from being part of a larger and more diversified insurer and AAI would no longer need to provide reinsurance to the other Transferring Insurers, thereby reducing its risk profile. The actuarial opinion is that there would not be any material increase in the risk to the policyholders of AAI.
The actuarial evidence indicates that the security provided to policyholders by reinsurance would, in effect, be unchanged. Whilst the individual insurers, other than AAI, currently benefit from intra-group reinsurance provided to them by AAI, the security of that cover is dependent upon the financial position of AAI. That position will remain unchanged following the proposed transfers.
The financial protection available to policyholders will remain compliant with all of the Authority’s requirements. The transfers will not involve any material change to the operational structure of the Suncorp Group. Specifically, the claims practices, staff and culture will remain unaltered. If the schemes are approved and implemented, the operational structure will be the same, but will be aligned with the legal structure. The ultimate ownership of the companies remains unchanged. There will be no changes to policy terms or conditions, other than the name of the insurer.
Before the proposed schemes are propounded for confirmation by the Court, a further actuarial report will be prepared based on the figures for the Suncorp Group as at 30 June 2012, thereby reflecting the latest available regulatory returns and audited accounts of the companies in the Suncorp Group. Notwithstanding the request for dispensation, AAI proposes to undertake a widespread, long-running and extensive information program in order to inform affected policyholders about the schemes.
An affected policyholder is the holder of a policy of insurance that is affected by the scheme, not merely the holder of a policy of insurance. Current policyholders of AAI, and policyholders of Transferring Insurers whose policies were not to be transferred, are not “affected policyholders” within the meaning of the Insurance Act. Under the present proposal, all policies issued by the four Transferring Insurers will be transferred to AAI. Accordingly, the holders of all those policies are affected policyholders. As I have said, there are in excess of 10 million current policies issued by the Transferring Insurers. There are in excess of 360,000 open claims under those policies. The holders of all of those policies and the claimants in respect of those claims may properly be regarded as affected policyholders for the purposes of the Insurance Act.
The program of providing information that is proposed includes the following:
·A hard copy of the summary of the relevant scheme approved by the Authority will be provided to any policyholder who requests it, which is a requirement of s 17C(4) of the Insurance Act.
·Notice of the relevant scheme will be provided to relevant brokers and intermediary broking networks.
·Steps will be taken to notify policyholders of the Transferring Insurers by means of the inclusion of notification in regular operational correspondence that will be sent to policyholders between 1 November 2012 and 31 March 2013.
·An email containing such notification will be sent to all policyholders whose email addresses have been collected by the Suncorp Group in connection with policy administration functions and who hold a current policy issued by a transferring insurer, other than those policies that are due for renewal between 13 September and 15 March 2013. The holders of those policies are expected to be sent information about the proposed schemes in connection with the renewal of the policy, as part of regular operational correspondence.
There are two exceptions to the proposed information regime. First, it is proposed that holders of policies issued by GIOG under the AMP and Resilium brands will not receive the scheme notification as part of their regular operational correspondence or by email. The reason for that is that there is a prospect of confusion that could arise for those policyholders, in the light of the launch of a new Resilium brand and the rebranding of all AMP-branded policies to be Resilium-branded policies, with effect from 17 November 2012. Information about the proposed schemes will be made available on the new website for that brand, which is expected to be launched during November 2012. Second, it is not proposed that the scheme notification be given to holders of compulsory third party policies issued by SMIL and AAMI in Queensland. The reason for that is that correspondence relating to the issue and administration of those policies is produced and distributed to the policyholders by the Queensland Department of Transport and Main Roads, rather than the issuer of the policy.
In addition, a series of advertisements will be published in 39 national and regional newspapers across Australia, setting out some detailed information concerning the proposed schemes. Further, a series of banner advertisements will be published on the Youtube website and the websites for The Sydney Morning Herald, The Age, Brisbane Times and WA Today newspapers. Copies of the notification, approved summaries of the schemes, scheme documents, notice of intention to apply to the Court, and the actuarial report upon which the schemes are to be based, will be made available on the website of AAI and Suncorp Group and the websites of each of the Transferring Companies.
It is proposed that an email enquiry facility and a 1800 telephone number for enquiries in respect of the schemes will be established, and media releases about the schemes will be released. It is also proposed that information about the schemes will be provided at the annual general meeting of Suncorp Group Limited. Finally, a copy of the notice of intention to apply to the Court in a form approved by the Authority will be publicised by means of newspaper advertisements in the Government Gazette and other newspapers circulating in each State and Territory in which any affected policyholder resides, as agreed with the Authority in compliance with its requirements.
The staff of Suncorp Group have estimated that affected policyholders who cumulatively hold in excess of 4.5 million policies will be sent correspondence containing the notification between 1 November 2012 and 31 March 2013. Further, Transferring Insurers will be able to send emails containing similar statements to approximately 1.3 million email addresses. Suncorp Group is able to reach 56 per cent of its general insurance customer base with the proposed newspaper advertising campaign, and is able to reach 30 per cent of its general insurance customer base aged between 18 and 54 with the proposed internet advertising campaign on the YouTube website and other newspaper websites. It is estimated that the advertising campaign will reach some 70 to 75 per cent of Suncorp Group’s general insurance customer base.
The regime that I have briefly outlined is intended to bring the schemes to the attention of a large number of policyholders and I am satisfied that it should be successful in achieving that aim. The regime will inform policyholders, who wish to do so, how to obtain further information about the scheme or copies of the scheme summary.
Compliance with the requirements of s 17C(2)(c) of the Insurance Act would require AAI to conduct a mass mail-out campaign that might be regarded as unique in its proportions compared with general insurance schemes propounded in the past. It would be difficult to implement a mail-out on that scale, having regard to factors such as the amount of paper required to provide each of the affected policyholders with an individual copy of the scheme summary for the relevant scheme. The cost of undertaking a mail-out campaign to holders of more than 10 million policies would be in excess of $7.7 million. Where affected policyholders hold different policies under one or more of the Transferring Insurers, a mass mail-out may cause unnecessary confusion to policyholders.
The Authority has no objection to the application and supports the orders sought by AAI. The orders sought outline the steps to be undertaken to notify affected policyholders of the schemes. The steps are outlined in detail in an affidavit of Ms Karen Taylor sworn on 8 October 2012. The Authority was represented on the hearing of this interlocutory application and confirmed that it is satisfied that the measures to be taken will elicit any potential policyholder objections to the scheme and bring those to the attention of the Court, Suncorp Group and the Authority before the confirmation hearing.
It is significant, as has been observed in other cases, that the Authority, which is charged with the responsibility of protecting the interests of policyholders, raises no objections to the proposed dispensation. The making of an order under s 17C(5) of the Insurance Act would not fetter or restrict in any way the Authority’s role in assessing and scrutinising every aspect of the schemes when they are finally propounded. The Transferring Insurers issue workers’ compensation and compulsory third-party insurance policies. The regulators in the various States and Territories of those insurance regimes have been informed of the proposed dispensation. All of them have indicated that they have no concerns with the proposed dispensation in the circumstances of this case.
I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate:
Dated: 5 November 2012
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