The High Court has blocked the £12bn transfer of Prudential's annuity book to Rothesay Life, citing the insurer's lack of "established reputation" and differing "capital management policies".
In a court judgment issued on Friday (16 August), Justice Snowden declined the request to approve a Part VII transfer, noting Rothesay Life was a "relatively new entrant" and "does not have the same capital management resources of the backing of a large group with the resources".
While an independent expert had verified that policyholders would see no adverse effects and that the scheme would not "materially affect the interests of reasonable expectations of policyholders", Snowden said the transfer could result in a "material disadvantage".
While the first part of the transfer - the movement of assets and liabilities - had been approved, the second part for the legal ownership of policies was declined after a number of annuitants "strenuously opposed" the transfer.
In his judgment, Snowden wrote: "[Rothesay Life] is a relatively new entrant without an established reputation in the business."
He added that, although Rothesay had "at least equal" solvency capital requirement metrics to Prudential, "it does not have the same capital management policies or the backing of a large group with the resources and a reputational imperative to support a company that carries its business name if the need were to arise over the lifetime of the annuity policies".
He continued: "I cannot dismiss as fanciful the possibility that such support may be required over the very long duration of these policies, and I consider that the reliance which policyholders would then have to place upon an uncertain capital raising exercise from the investors in Rothesay or the markets more generally, is a material disadvantage of the scheme to transferring policyholders."
Rothesay is backed by three major shareholders: US private equity firm Blackstone Group with 35.85% of shares; a subsidiary of Singaporean sovereign wealth fund GIC Private, with 35.85%; and, a subsidiary of US insurer The Massachusetts Mutual Life Insurance Company, with 24.67%.
In a statement, Prudential Assurance Company said it was "disappointed".
"The independent expert, who was appointed to report to the High Court, concluded the transfer would have no material adverse effect on the security of benefits or the reasonable benefit expectations of our policyholders."
Rothesay Life noted the transfer had been provisionally approved by the Prudential Regulation Authority and the Financial Conduct Authority, and that a reinsurance transaction had also been agreed.
It added: "Rothesay Life and [Prudential] are committed to a long-term relationship irrespective of the outcome of the proposed insurance business transfer."
Prudential and Rothesay Life have been granted leave to appeal the judgment to the Court of Appeal - although there was no confirmation yet as to whether the appeal will go ahead.
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