Re Windsor Life Assurance Company Ltd

THE CHANCELLOR: This is an application by a part 8 claim of NM Pensions Limited, NM Life Limited and Windsor Life Assurance Limited for an order under section 111(1) of the Financial Services and Markets Act 2000 sanctioning the transfer to Windsor Life of the entire long-term business of both NMPL and NMLL, as I shall refer to them shortly, together with the associated assets and liabilities and ancillary orders under section 112. Originally there was another similar scheme involving the transfer of long-term business to Windsor Life from Zurich Assurance Limited to be heard at the same time but, for reasons which are now immaterial, I have adjourned that to a future date.

The applicants, the Financial Services Authority, and the supervisory board, to which I will refer in due course, all appear by counsel and there also appear before me in person three policyholders with one or other of the insurance companies. They were Mr Frank Stanger, Mr Graham and Mr Horrex. Two further policyholders, Mr and Mrs Barnett, had said that they did intend to appear. In the event Mr Barnett was content to rely on certain written submissions, to which I shall refer in due course.

All three companies are subsidiaries of Swiss ReGB Plc, having been acquired by that company from General Electric Company of America in 2006. They represent the former businesses of other insurance companies as follows: NMP was incorporated in 2001 and carries on the long-term business formerly carried on by the National Mutual Life Assurance Society. NMLL was formerly GE Pensions Limited and carries on non-profit business consisting of enhanced annuities and equity release policies. Windsor Life was incorporated in 1963 and since then has acquired closed blocks of insurance business from, amongst others, Gresham, Aetna, Crown, Combined, GAM and Reassure UK.

Relevant details concerning the three applicants are as follows. NMP has 335,000 policyholders consisting of 276,000 pension policies, 28,000 annuities and 18,000 endowment policies. It has a shareholders fund and a long-term business fund. The long-term business fund is divided pursuant to the NM scheme, to which I shall refer in due course, under which its business was acquired from National Mutual Life Assurance Society into the NMP NM fund and the NM new business fund. The NMP NM fund was closed to new business on demutualisation in 2002. Its assets and liabilities are those taken over from National Mutual in which the shareholder is not entitled to participate. 315,000 of its total 335,000 policies are held in this fund. It is divided into two accounts, the with profit account and the non-profit account. The NM new business fund has taken new business since 2002 and the shareholders may participate in its profits.

As at 31 December 2006, NMP had assets of £6.024 billion which was held as to £2.831 billion in the NM fund, £3.152 billion in the new business fund and £41 million in the shareholders fund. As at the same date it had liabilities of £5.053 billion. NMLL has 46,000 policyholders, of which 42,000 are annuity policies. It has a long-term business fund and a shareholders fund which is entitled to all the profits of the business. As at 31 December 2006 it had total assets of £2.2 billion, £77 million was held in the shareholders fund, and total liabilities of £2.035 billion.

Windsor Life has 840,000 policies in force, of which 823,000 are non-profit and 17,000 with profit policies. It has a with profits fund, to which I shall refer as the Windsor Life WP fund, a non-profits fund, to which I shall refer as the Windsor Life NP fund, and a shareholders fund, referred to as the Windsor Life shareholders fund. Shareholders are entitled to 10 per cent of the profits on the WP fund and 100 per cent on the NP fund. As at 31 December 2006 Windsor Life had assets of £7.246 billion and liabilities of £6.935 billion.

All three companies are subject to regulatory requirements imposed by and under the Financial Services and Markets Act. They necessitate in relation to each company the maintenance of capital in excess of the higher of (a) its statutory requirement and (b) its individual capital guidance. These two measures are known in the business as Pillar 1 and Pillar 2. Pillar 1 consists of two peaks, Peak 1 and Peak 2. Peak 1 only takes account of legal liabilities, such as guaranteed amounts and declared reversionary bonuses. Peak 2 takes account also of policyholders' expectations of discretionary bonuses and other benefits. Pillar 1, Peak 1 is the minimum capital requirement, known as the capital resources requirement, or CRR for short. Peak 2 applies to any "realistic basis life company", that is to say, one with with profits liabilities in excess of £500 million. NMP is such a company and Windsor Life will become one if this scheme takes effect.

Pillar 2 requires every life company to submit to the Financial Services Authority its individual capital assessment showing its solvency in all but the most extreme circumstances. If the Financial Services Authority considers that assessment to be too low it may impose a higher one called its individual capital guidance ("ICG"). Extreme circumstances in this context are those which fall outside the range of a 99.5 per cent probability of meeting all potential losses within a period of a year.

All three companies satisfy all the relevant regulatory requirements. As of 31 December 2006 the margin of satisfaction was 147 per cent in the case of NML, 108 per cent in the case of NMP (though that goes up to 184 per cent if the with profits capital component is treated as a reserve rather than as a liability), and 137 to 152 per cent in the case of Windsor Life.

On 18 March 2002 Ferris J sanctioned the NM scheme under schedule 2C of the Insurance Companies Act 1982 whereby the long-term business of National Mutual was transferred to NMP with effect from 8 April 2002. Salient features of that scheme include the constitution of the NM fund and the new business fund as separate funds in the long-term business fund, the allocation of assets and liabilities to them. It also gave rise to the establishment of a supervisory board whose prior sanction is required under clause 48.5(b) of the NM scheme to "the disposal of any part of the business or property or liabilities of the NM fund". It also provides in clause 59.2 for the approval of the supervisory board being required "having taken independent advice" to any amendment to the scheme which does not adversely affect the reasonable expectations of or reduce the protection conferred by this scheme of NM policyholders.

Issues have arisen, with which I shall deal in due course, as to whether clauses 48.5(b) and 59.2 are applicable to the transfer scheme now under consideration and, if so, whether they have been complied with.

On 14 December 2006 NMP and NML as part of the business of the GE Group was acquired by the Swiss Re Group, specifically Swiss ReGB Plc. In May 2007 there was an agreement between Swiss Re and Liverpool Victoria conferring certain put and take options over the new business capability of the NM Group which is exercisable, as I understand it, in late December this year. The scheme before me was unanimously approved by the supervisory board appointed under the NM scheme on 18 September 2007. They resolved on that occasion to instruct counsel to attend the hearing before me on their behalf in order to assist the court.

The part 8 claim now before me was issued on 24 September 2007. It came before Registrar Derrett on 2 October, who gave directions as to the various notices to be given and advertisements to be inserted in specified newspapers so as to comply with the relevant transfer regulations.

On 19 October 2007 relevant documents were made available on the website of all three applicants and those documents, in the form of a pack, were sent to all those whose names appeared on the computerised lists of policyholders of all the applicants. The pack included an explanatory letter dated October 2007 together with a list of what are now known as 'frequently asked questions', a summary of the scheme and of the independent expert's report, which had been signed on 1 October, and formal notice of the application which is now before me. In the case of 107 policyholders, the pack was not sent until 30 October, but when it was sent it was by special delivery guaranteeing delivery on the following day, 31 October.

The pack invited policyholders who considered that they might be adversely affected by the proposed scheme to communicate their concerns to the relevant company. This they did and the witness statement of Mr Stuart Wilkinson made on 23 November 2007 explains the procedure adopted by the companies answering policyholders' questions. In all there were 1,512 telephone calls, 13 e-mails and 73 letters. They included 163 requests for further information and 77 objections to the scheme. The objections fall into the following principal categories. First, the reduction in security for NMP policyholders. That reflected the concerns of 20 of those who communicated with the companies. Secondly, concern at the number of transfers and name changes involving the insurance business in which these policies are written. That was reflected in 19 responses. Thirdly, concerns relating to the financial strength or alleged lack of it of Windsor Life. That was reflected in some 16 comments, and further objections of one sort or another to Windsor Life in another 16. The balance was made up of miscellaneous objections from one or two policyholders which do not require any further mention.

On 6 December 2007 the supervisory board appointed under the NM scheme consented to this scheme and the Financial Services Authority's report which is now before the court was duly signed. The effective date of the scheme, if I sanction it, is 31 December 2007, with a long stop date of 31 March 2008. The purpose of the scheme is to transfer to Windsor Life all the business of NMP and NML and then to wind them up. It is considered that the consolidation of all three businesses in Windsor Life will enable operational and financial efficiencies to be achieved. The scheme is complicated and this is largely due to the necessity to preserve for the policyholders of NMP who had been earlier transferred from National Mutual the equivalent to the protection afforded by the NM scheme and the supervisory board.

The salient features of the scheme can for present purposes be summarised in the following eleven propositions. First, Windsor Life will establish a new with profits fund, Windsor Life NM WP fund. Its shareholders will not be entitled to participate in the profits of that fund. Second, all policies, assets and liabilities of NMP NM fund, WP account, except annuities in payment, are to be transferred to the Windsor Life NM WP fund. Third, all policies, assets and liabilities of NMP NM fund non-profit account, together with the annuities in payment in the with profit account, are to be transferred to the Windsor Life with profit fund. Fourth, a compensatory payment is to be made from Windsor Life WP fund to Windsor Life NM WP fund on account of the dilution experienced by those entitled to share the profits of the NMP NM fund. Fifth, Windsor Life NM WP fund is to be ring-fenced for the benefit of the former members of National Mutual but if its assets drop below £300 million or £60 million it may or must merged with another fund of Windsor Life on terms agreed by the Financial Services Authority and the fairness committee of Windsor Life.

Sixth, the NMP new business fund assets and liabilities are to go to Windsor Life NP fund, except increments or unitised with profits policies which go to Windsor Life WP fund or Windsor Life NM WP fund as appropriate. Seventh, other provisions contained in the NM scheme are carried forward to the Windsor Life scheme, including provisions relating to capital support, administration charges and the supervisory board of the former, which is to be subsumed into the fairness committee of the latter. Eighth, in the case of NML, the long-term business fund business and assets and liabilities are to be transferred to Windsor Life NP fund and the shareholders fund assets and liabilities are to go to the Windsor Life shareholders fund. Ninth, the NM scheme will cease to have effect from and after the effective date of this scheme, if sanctioned, namely, 31 December 2007. Tenth, the costs of the scheme are to be borne by Swiss ReGB Plc and, eleventh, a parallel scheme and application to the court is being made in Guernsey in relation to a small number of policyholders resident there.

With that introduction I turn to the issues of law. The law relevant to the sanction of the court to this scheme is contained in part 7 of the Financial Services and Markets Act 2000. As I have already indicated, there are prior issues arising from the terms of the NM scheme. It is convenient to deal with them at this stage. As I have already indicated, the NM scheme was approved pursuant to schedule 2C of the Insurance Companies Act 2002 by Ferris J on 18 March 2002. It came into operation on 8 April 2002. It provided that the whole of the long-term business of National Mutual and the assets and liabilities associated with it to be transferred to GE Pensions Limited, to be held and dealt with as that scheme required. Clause 10 provided for the establishment of the National Mutual fund and the new business fund as separate funds within the long-term fund. Part J provided for the establishment of the supervisory board. So far as material it provided as follows. Clause 48.2:

Clause 48.3:

Clause 48.4:

Clause 48.5 provides:

Then (a) relates to the acquisition of property and (b):

I pass from there to clause 59, which is headed "Modifications or Additions". At 59.1:

Clause 59.2:

Clause 59.3:

The first schedule to the scheme contains a large number of definitions, which I do not need to refer to, save to point out that the reference in 59.2 to the GE Pensions Group must now be read as a reference to Swiss ReGB Plc and the NMPL, that is to say NMP (inaudible).

Two points arise. Do clauses 48.5(b) and 59.2 apply to the scheme now under consideration and, if so, have their terms been complied with? On the first point it is not disputed that the scheme now under consideration involves "a disposal" of a part of the business, property or liabilities of the NM fund for the purposes of clause 48.5(b). That, if I may say so, is plainly right. Clause 3 of this scheme provides for just that. Accordingly, the prior consent of the supervisory board was required to "any action or decision" in relation to such disposals. The evidence before me includes a letter from the chairman of the supervisory board to the effect that this scheme was approved at a meeting of the supervisory board held on 18 September 2007. That statement has not been challenged. Accordingly, I conclude that clause 48.5(b) applies and has been satisfied.

In relation to clause 59.2, counsel for the applicants contended that the scheme now under consideration did not constitute an amendment for the purposes of the clause. He drew a distinction between an action which changed an existing arrangement and one which abrogated it altogether. He suggested that the former would be an amendment but the latter would not. He supported his argument for such a construction by asking why it would have been intended that in the consideration of a subsequent transfer scheme requiring the sanction of the court the requirements for independent advice and for another independent actuary should have been thought to be necessary.

These submissions were disputed by counsel for the supervisory board. He submitted that in its context the more extensive the alteration the more likely it would have been thought necessary for the supervisory board to be involved. He suggested that there was no duplication if the supervisory board was required to obtain advice for its focus was, as required by clause 48.2, more limited than that of the applicants or of the independent expert.

I have no hesitation in preferring the submissions of counsel for the supervisory board. The NM scheme is to be amended in a large number of respects because all those provisions contained in the earlier clauses as to allocation of assets and liabilities to the NM fund and the NP fund are all to be altered. The extent of the alteration necessitates the provision in this scheme of clause 40, which is in the following terms. NM scheme 40.1:

Given the evident purpose of the creation of the supervisory board, I see no reason to exclude from the requirement for its consent changes brought to the NM scheme by that under consideration. The more extensive the change the greater the need for that satisfaction. Nor do I accept that such a construction leads to unnecessary duplication. The supervisory board is to consider only the interests of the policyholders referred to in clause 48.2, that is to say those transferring from National Mutual. The independent expert considers this scheme from more points of view than that.

Accordingly the supervisory board was required to obtain independent advice. This they did, as the letter from the chairman, to which I have already referred, indicates. The supervisory board had instructed Clifford Chance in June 2007 and had been receiving advice from them as required ever since. No one suggested that they were not independent of all other participants in this scheme. The supervisory board also sought the opinion of the independent actuary as an actuary independent of NMP and Swiss Re. They have taken the place of GE Pensions Group for the purposes of clause 59. The independent expert gave them the benefit of his opinion at a meeting held on 13 September. Mr Stanger suggested that the independent expert was not sufficiently independent for the purposes of clause 59.2 as he was already the independent expert for the purposes of this scheme, having been appointed by the applicants for the purpose. I do not agree. Clause 59.2 requires two elements of independent advice. The first is advice to the supervisory board. The second is an opinion in relation to the effect of the proposed amendment on the reasonable expectations or protection of policyholders. The first is provided by Clifford Chance. The latter was only required to be given by one independent of NMP and Swiss Re. The independent expert was so independent and the fact that he had given an opinion in the wider context of the scheme as a whole does not, in my judgment, make him any the less so.

The relevant conclusion of the independent expert is contained in paragraph 9.25 of his report dated 1 October 2007 where he stated:

I turn then to the provisions which confer on the court the jurisdiction to sanction the scheme. It is not disputed that this scheme is an insurance business transfer scheme as defined in section 104 of the Financial Services and Markets Act. Accordingly section 111 applies. Subsection 2 of that section sets out formalities to be observed to the satisfaction of the court if it is to be entitled to sanction the scheme. The report of the Financial Services Authority shows that all these preconditions have been satisfied and no one has suggested the contrary. Accordingly, the question is, as posed by subsection 3, whether "in all the circumstances of the case it is appropriate to sanction the scheme".

The principles in accordance with which the jurisdiction is to be exercised were comprehensively set out by Evans-Lombe J in Re Axa Equity and Law Life Assurance Society Plc; in Re Axa Sun Life Plc [2001] 1 All ER 1010 at pages 1011 at 1012. They are well known but in the light of the observations of policyholders appearing before me they bear repetition. Evans-Lombe J said this:

Accordingly I now turn to the reports of the independent expert and of the Financial Services Authority. An application for sanction of the court to a transfer scheme is required by section 109 to be accompanied by a report of an independent expert approved by the Financial Services Authority. The expert in this case is Mr Nicholas Dumbreck, a consulting actuary with Watts and Wild Limited of considerable experience. His independence is reinforced by the requirement imposed by section 109(2) for the Financial Services Authority to approve his appointment in accordance with their own guidance in chapter 18 of their supervision manual. It is further reinforced by his own recognition of the duties imposed on him which are contained in paragraphs 1.18 and 1.19 of his report. His appointment was approved by the Financial Services Authority on 12 April 2007. His report is dated 1 October 2007 and its form was approved by the Financial Services Authority on the same day.

Before referring to the salient points in it, it is appropriate also to refer briefly to five other actuarial reports then in existence made by actuaries with whom the independent expert had discussions. The first is one dated 30 August 2007 made by Mr Giles Woodruff, the with profits actuary of NMP and NML. He considered the implications of the scheme for the fair treatment of with profits policyholders of NMP. He concluded that (i) in overall terms the change, whether positive or negative, is likely to be small, but (ii) on the assumption that all outstanding matters are resolved it would provide a reasonable balance of advantage and risk for NMP with profits policyholders.

The second is a supplemental report of Mr Woodruff dated 18 September 2007 following a board meeting of Windsor Life. He then concluded that the outstanding matters to which he had earlier referred had been suitably resolved, but some resolution had increased the balance of advantage and reduced that of risk and that there was therefore a reasonable balance of advantage.

The third report, also dated 18 September 2007, is that of Mr Lightwood, the actuarial function holder for Windsor Life in respect of the proposed transfers of long-term business to Windsor Life. He concluded that the transfers should have no material adverse effect on the interests of policyholders in Windsor Life.

Fourth, there is the report dated 19 September 2007 of Mr Downey, the actuarial function holder of NMP and NML in respect of future security and benefit expectations and fair treatment of policyholders in those companies. He gave three reasons for the transfer, namely, operational efficiencies, improved capital efficiency by reducing the capital requirements and removing a dividend block and, third, financial synergies. He concluded that the security for National Mutual with profits policyholders would slightly increase, that the financial security of other policyholders in NMP and NML should not in the normal course of events reduce materially, that the 'contagion' risk would rise and this would be relevant in the event of the insolvency of Windsor Life but that risk appeared to be remote. There was no reason to think that the benefit expectations and fair treatment would be adversely affected and the independence of the governance arrangements under the National Mutual scheme would be reduced by the removal of the supervisory board, but the amended arrangements for the fairness committee of Windsor Life would be an adequate substitute.

That, therefore, was the background against which the independent expert produced his report. It contains a number of salient points. First, the relevant considerations from the point of view of transferring policyholders and Windsor Life policyholders are security for contractual rights and the effect of the scheme on levels of service and the reasonable expectations of policyholders and in relation to all policyholders the adequacy of safeguards to protect their interests once the transfer has taken effect.

In paragraph 2.2 he summarised his conclusions in these terms:

I should add that he adds:

In paragraph 3.18 the independent expert recorded that he asked for a projection of solvency and dividend paying capacity of Windsor Life from implementation of the scheme until 31 December 2008. He was told that such projections were not available. Paragraph 3.18 continues in these terms:

In chapter 4 the independent expert considered the regulatory requirements of Pillar 1 and Pillar 2 in relation to each company before the transfer is effected and I have already indicated his conclusions. In chapter 5 he explained the main features of the scheme and chapter 6 contains certain general considerations. Chapter 7 is devoted to security of benefits. These he considered in detail in relation to each class of policyholder of NMP, NML and Windsor Life. I shall consider some of those details when dealing with the observations of individual policyholders. His conclusion, expressed in paragraph 7.38, is as follows:

In chapter 8 the independent expert dealt with benefit expectations of every class of policyholder in considerable detail. He concluded in paragraph 8.53 in these words:

In chapter 9 the independent expert turned to what he described as 'other considerations', in particular the governance framework established by the NM scheme. In this context two points arose. First, the terms of reference of the Windsor Life fairness committee did not appear to offer the same protection as the supervisory board set up under the NM scheme and, secondly, the requirements of clause 59.2, with which I have already dealt.

With regard to the terms of reference of the fairness committee of Windsor Life, he noted the perceived shortcomings in paragraph 9.3 of his report and concluded in paragraph 9.4 that they were compensated for by the stricter regulation now enjoyed by all with profits policyholders since the supervisory board was first established. On 29 November 2007 the independent expert submitted a supplementary report to deal with variations to clause 16 of the scheme, with which I do not need to deal.

I turn then to the Financial Services Authority report. The FSA is the regulator of each of the applicants and is entitled to be heard on this application under section 110 of the Act. It does not object to the scheme. The salient features of the report are that policyholders and others have received sufficient information about the scheme. Though the capital resources requirement cover for existing policyholders in Windsor Life will reduce, the cover will remain satisfactory. The proposed scheme is fair to the generality of policyholder and no particular group or class will be materially disadvantaged. Though 107 policyholders in Windsor Life had one day less than the six weeks the FSA considers appropriate for consideration of the scheme, that was not significant when placed against the costs and delay to others if the application were adjourned. The matters raised in the supplemental scheme report did not impact on its conclusions.

The FSA expressed no view as to the application of clauses 48.5(b) and 59.2 of the NM scheme, but did require the issues to be aired in court, as they have been, and noted that if they are relevant compliance is essential to approval of the scheme. The FSA was satisfied that the scheme lies within the range of reasonable and fair schemes available to the applicants and therefore does not object to the court sanctioning it. As to the material issues raised by policyholders in the correspondence and telephone calls, to which I have referred, the FSA has considered them and sees no reason to alter its view.

I turn then to the individual objectors. As I have indicated, communications were received from individual policyholders as summarised in Mr Wilkinson's witness statement, to which I have already referred, and were passed on to the independent expert and the FSA. All of them indicated an intention to appear before me and it is to their submissions that I now turn.

Mr Stanger is a retired solicitor and a non-profit policyholder with NMP. He wrote to both NMP and the independent expert seeking assurances that the security for his annuity, now in payment, would be unaffected by the scheme. In addition he asked why the scheme was being propounded at all and what were the perceived advantages. He put his submissions into writing and agreed at the hearing that they should be regarded as superseding the objections he had earlier advanced in correspondence. At the hearing he advanced two main points. The first was that the summary of the report of the independent expert provided to policyholders omitted a most material passage so that there had not been proper consultation with them. The second objection was that the absence of any compensation being provided to NMP policyholders for the diminution in the security for their benefits was objectionable. On the basis of those points he invited me to adjourn this application to enable the applicants to provide a new and better summary of the independent expert's report and proper and fair compensation for the diminution in security.

The omission from the summary of the independent expert's report sent to policyholders is part of paragraph 7.18 of the report. The complete paragraph reads as follows:

The passage that was omitted, to which Mr Stanger objects, is the phrase "because of the increased exposure in extreme circumstances to risks arising from other business". It is true that that passage was omitted from the summary but, as Mr Wilkinson pointed out to Mr Stanger in an e-mail sent on 6 December 2007, and counsel for the applicants pointed out to me, the information was provided to policyholders, albeit in a different place.

The policyholders' pack included, as I have already said, a set of 'frequently asked questions'. Question 8 included the following: "Is the transfer fair to all policyholders?" Then there are about 20 lines of answer and the third of various bullet points and the response to it is in these terms:

Accordingly, it seems to me that the omission from one document was made up for by inclusion in the other. It must also be borne in mind that the purpose of sending policyholders the summary is so that, and I quote from the Financial Services Authority guidance, "every recipient should understand in broad terms how the scheme is likely to affect him. This objective is most likely to be achieved if the summary is clear and concise while containing sufficient detail for the purpose." It was consistent with the achievement of that objective that the omission of which Mr Stanger complains was made. I see no merit in this objection.

In relation to the second point, Mr Stanger relies on a passage in the FSA guidebook as indicating that any loss must be compensated, however small. He comments on the elasticity of the adjective used by the independent expert, namely, 'satisfactory'. He requires a proper price for the diminution in security to be paid by the proponents of the scheme. This point was raised by Mr Stanger in a letter to the independent expert dated 23 November. He wrote:

The independent expert replied to this on 3 December 2007 in the following terms:

In my view, the response of the independent expert shows how little the security enjoyed by NMP policyholders is to be affected. In addition, it shows that no worthwhile compensation can be assessed. A nominal sum would be too little if the risk materialised and the refusal to sanction this scheme lest the risk does materialise too great if it does not. In any event, as counsel for the applicants pointed out, in the previous paragraph of his report the independent expert had observed that the NMP NM fund "is in fact a very strong fund". But in any event the court is not concerned with whether there might be devised a better scheme from the point of view of NMP policyholders (see per Evans-Lombe J in Re Axa, paragraphs 2 and 6).

Mr Stanger also commented adversely on the power of financial institutions when compared with that of policyholders, the connections they have with the profession of actuary and consequent lack of independence of the independent experts generally, the failure of the Financial Services Authority to comment on the purposes of this scheme or its effect on the security for benefits or on benefit expectations and what he, Mr Stanger, considers to be misplaced reliance on the financial strength of a parent company. These comments are commonly made by policyholders appearing on applications such as this and should not be belittled. Nevertheless, Mr Stanger did not criticise the integrity or professional competence of the independent expert, Mr Dumbreck, nor had he read the passages in the report of the Financial Services Authority in which it had in fact commented on most of the matters concerning Mr Stanger. I see nothing in the submissions of Mr Stanger to lead me to think that it would be inappropriate in all the circumstances to sanction the scheme.

Mr Peter Graham is a solicitor in private practice. He is also a with profits policyholder in NMP. His concerns, as raised on the telephone and in correspondence, were in relation to a reduction in security for benefits, the lack of any legal obligation on Swiss Re to maintain Pillar 1 and Pillar 2 cover for its subsidiaries, the lack of a constitution and rules for the fairness committee of Windsor Life, the loss of protection of the supervisory board of NMP and that regulatory protection, which is merely a minimum, cannot provide an acceptable substitute. On 5 and 28 November and 10 December NMP responded fully to these and other points.

At the hearing Mr Graham maintained all his objections but concentrated on the first and the third. His point on the reduction of security was comparable to that of Mr Stanger. He contrasted the position of a with profits policyholder of NMP before the transfer, whose benefits are secured on a strong, closed fund, with that of such a policyholder after the transfer, exposed to the risks identified by the independent expert in paragraph 7.18 of his report, associated with new business taken on by Windsor Life. The answer, as it seems to me, is the same as that given to Mr Stanger. The risk is remote, 0.5 per cent chance of the insolvency of Windsor Life in a rolling period of one year and the capital resources requirement of the NMP NM fund being amply exceeded.

With regard to protection afforded by the supervisory board, the independent expert carried out a detailed comparison between the jurisdiction and powers of the supervisory board under the NM scheme and those of the fairness committee after this scheme takes effect, if it does. At paragraph 9.20 he concluded:

He then considers various other matters in the subsequent paragraphs and concluded in paragraph 9.23:

Once again I remind myself that the court is not concerned with whether a better scheme might have been devised but with whether in all the circumstances it is appropriate to sanction this one. I see nothing in the observations of Mr Graham to lead me to the conclusion that it is not.

Mr Horrex is retired. He is an annuitant of NML. He first wrote to NML on 27 October seeking further information. This was provided to him on 8 November. He wrote again on 5 December. His concerns are that annuitants of NML will be exposed to the risks inherent in the new business conducted by Windsor Life, that their new business is no more than run-off business from others seeking to leave the market and that there is no relevant credit rating for Windsor Life. NML replied in some detail to these points in a letter dated 10 December. At the hearing Mr Horrex reiterated these concerns. In my view, the letter from NML dated 10 December was a more than adequate response to the concerns of Mr Horrex, but it is also relevant to note, as counsel for the applicants pointed out, that for some technical reasons set out in paragraph 7.12 of the independent expert's report the security of Mr Horrex's annuity in the opinion of the independent expert actually increases as a consequence of the scheme for which the court's sanction is required. I see nothing in the observations of Mr Horrex to lead me to the conclusion that it is inappropriate to sanction this scheme.

Finally, I turn to Mr and Mrs Barnett. They are NMP with profit policyholders. The policy is a mortgage endowment plan. On 19 November Mrs Barnett rang in to NMP on the dedicated line to express her concerns. On 28 November a substantive response was sent by NMP. Unfortunately it suggested that the Barnetts held a non-profit policy with NMP, which generated a further call from Mrs Barnett on 30 November and a letter confirming their mistake from NMP. On 30 November also Mrs Barnett wrote again at greater length and she wrote to the court on 5 December enclosing a copy of her letter of 30 November to NMP. On 10 December NMP wrote again to deal with the substance of the various points made by Mrs Barnett in her letter of 30 November.

Her points fall into the following nine categories. (i) The independent expert is not sufficiently independent. (ii) There should be no reduction in security. (iii) One-year projections should have been produced. (iv) Benefit enhancements should not be affected. (v) Maintenance of service standards. (vi) The capital resources requirement. (vii) The NML dividend block. (viii) The supervisory board, and (ix) paragraph 59.2 of the NM scheme.

At the hearing only Mr Barnett appeared. He did not wish to address me but was content to rely on the written observations made by his wife. I have dealt with all these points in my consideration of the objections of other policyholders save the third, the absence of one-year projections, and the seventh, the removal of the dividend block. In a sense they go together and it is convenient to deal with the dividend block first.

The dividend block, as explained by the independent expert in paragraph 4.23, arises from a deficit on NML's profit and loss account. Accordingly, there were no profits available for distribution by way of dividend (see section 263(1) of the Companies Act 1985). Following the transfer scheme becoming effective the accounts of NMP and NML will be consolidated with those of Windsor Life. One consequence will be that the surplus on the profit and loss account of the latter will extinguish the deficits of the profit and loss accounts of the former. Accordingly, distributions by way of dividend will thereafter be legally permissible. But the legal ability of Windsor Life to pay dividends has no effect on the capital resources requirement of any of the relevant funds or of Windsor Life. Those constraints remain as before, though applied to a different mix of assets. Thus, whilst I understand Mrs Barnett's concern, I do not think that the removal of the dividend block has any effect on the security for her benefits. They are as secure after the removal of the dividend block as before.

For similar reasons I do not attribute the importance to the 12-month projection that Mrs Barnett did. At paragraph 3.18 the independent expert pointed out that the 12-month projection had not been available but that he did not consider its absence to be a major impediment to his consideration of the scheme. Mrs Barnett found that statement astonishing. On 30 November 2007 she wrote this:

In fact the independent expert had explained his position further in paragraph 7.32 of his report. There he had said this:

I understand that to mean that as the profits available for distribution by way of dividend would be generated by existing business within the framework of the existing capital resources requirement, their extraction by way of dividend under the umbrella of the capital resources requirement would not affect the ongoing security for the benefit of policyholders. It should also be remembered that payment of dividends is only one way in which security for benefits may be prejudiced. Unwise investments or loans may do so too. Neither the removal of the dividend block, the ability to pay dividends, nor the absence of the projection of future solvency affect that risk.

The real protection of policyholders lies in the imposition and enforcement of the regulatory capital requirements. That is unaffected by the omissions of which Mrs Barnett complains. Accordingly, as with the others, so were Mr and Mrs Barnett. I see nothing in their observations sufficient to lead me to the conclusion that it is inappropriate to sanction the scheme.

Counsel for the applicants submits that in all the circumstances it is appropriate to sanction the scheme. He relies on a number of points. First, he submits the scheme gives effect to a reasonable commercial objective. Second, the independent expert concludes that the scheme will not materially reduce or adversely affect the security or benefit expectations of the NML or Windsor Life policyholders and the security of the NMP policyholders, although reduced, is nevertheless satisfactory or very good. Third, the FSA, having seen all the policyholder correspondence exhibited to the witness statements of Mr Wilkinson, does not object to the scheme. The FSA has considered the scheme in the context of its statutory duty to ascertain whether the scheme is consistent with the FSA statutory objective of appropriately protecting consumers and is fair to the generality of policyholders. The scheme is fully explained in the documents made available to policyholders in accordance with the court's order and, he submits, no sufficient grounds for objection have been raised and all statutory requirements have been complied with.

In addition, the supervisory board has considered the independent advice of Clifford Chance and the report to them of the independent expert and concluded that there was no reason for them to object to the scheme. The Financial Services Authority does not object provided the court is satisfied that if paragraphs 48 and 49 of the NM scheme apply in the circumstances of this application they have been duly satisfied. For all the reasons I have given, I consider that they do apply and that they have been fully satisfied.

For all these reasons I consider that it is appropriate to sanction this scheme. I understand that there is one outstanding point in relation to the regulatory body in Spain. Subject to satisfactory resolution of that problem I will make the order sought in paragraph 2(b)(i) of the claim form. I will hear counsel for the applicant further on the further relief sought in paragraphs (ii) and (iii) of that subparagraph.

I will deal with the jurisdiction point first. After I had given judgment and indicated my intention to approve the scheme it was indicated to me by counsel for the applicants that Mr Graham, who had by then left court, wished to raise a point on my jurisdiction. The point arises from the fact that the independent expert had made what he called a supplemental report which had not been served on policyholders more than 21 days before the hearing.

The requirement for a report at all is set out in section 109 of the Act. This requires the application to be accompanied by a report on the terms of the scheme. Then there are provisions in subsection 2 as to who may make it. The Financial Services and Markets Act 2000 (Control of Business Transfers Requirements on Applicants Regulations) 2001, regulation 1.2 contains a number of definitions and the report is defined as meaning "the scheme report mentioned in section 109(1) of the Act". If one then goes to regulation 3, paragraphs (4) and (5), they provide that:

Then under regulation (4):

The point is this: the scheme report was dated 1 October and was served on all the policyholders a great deal more than 21 days before the hearing before me, but, as I indicated, there was a supplemental report on 28 November dealing with a very minor point in relation to an amendment to clause 16 of the proposed scheme dealing with another company which might or might not lead to a reduction of capital by that company. In any event the conclusion of that document was that it did not make any difference to the opinion of the independent expert in the main report.

It would be absurd if a further document such as that, intended to elucidate subsidiary matters which had arisen after the publication of the report, should require everything to start again and introduce another delay of 21 days. It seems to me to be plain, and I so hold, that the report as defined in regulation 1.2 means and means only the main scheme report with which the application must be accompanied if it is to be within section 109 at all. Accordingly, Mr Graham's objection to my jurisdiction to sanction this transfer is rejected.