Tag Archives: Robert Bugg

Court of Appeal overturns Prudential/Rothesay verdict

On 2 December 2020 the Court of Appeal in England handed down its judgement to uphold the appeal that had been brought in relation to the Part VII transfer of annuity business from The Prudential Assurance Company Limited (Prudential) to Rothesay Life Plc (Rothesay), collectively referred to as “the Appellants.”  

The appeal was brought by the Appellants following the decision of the High Court, delivered by Mr. Justice Snowden on 16 August 2019, to decline to sanction the transfer of approximately £12 billion of nonprofit annuity liabilities from Prudential to Rothesay. The annuities in question had already been 100% reinsured to Rothesay and therefore the purpose of the Part VII transfer was to formalise the transfer of risk that had already taken place.

In his oral remarks when handing down the judgement, the Chancellor of the High Court, the Rt. Hon. Sir Geoffrey Vos, noted the following areas of disagreement with Mr. Justice Snowden’s original judgement:

  • Mr. Justice Snowden’s decision to disregard the conclusions of the Independent Expert in relation to the likelihood of future capital support being required by Prudential and Rothesay. The Court of Appeal took the view that basing conclusions in this area primarily on the Solvency II financial strength of the transferor and the transferee was justified, notwithstanding that the Solvency II capital requirement is based on a one-year time horizon rather than a time horizon consistent with the lifetime of an annuity, given the role of the regulatory regime in protecting future solvency and the speculative nature of any assumptions about the future availability of parental support.
  • Mr. Justice Snowden’s decision to disregard the non-objection to the transfer of the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).  The Court of Appeal was mindful of the PRA’s and FCA’s views. 
  • Mr. Justice Snowden’s decision to assign significant weight to the argument by objecting policyholders that they had specifically chosen Prudential based on its age and venerability; the Court of Appeal concluded that the relevant consideration was whether the transfer would have a material adverse effect on policyholders, and that this rested principally on the impact of the transfer on the likelihood that obligations to policyholders would continue to be met.

The decision to uphold the appeal does not mean that the transfer has been sanctioned. The appeal was focused on the question of whether the original judgement in the High Court, delivered by Mr. Justice Snowden, was legally sound based on the information available to the High Court at the time.  The Court of Appeal elected not to consider the question of whether it was appropriate to sanction the transfer based on current circumstances, and therefore the question of whether the transfer should be sanctioned will now be remitted to the High Court for a fresh round of hearings, in effect starting the Part VII transfer process again.

Equity release mortgages considerations for UK life insurers

Equity release mortgages (ERMs) have been sold for many years in the United Kingdom and in their early days were subject to controversy around customer fairness. However, ERMs are now a growing component of UK life insurers’ balance sheets, and are mired in a new controversy, this time around their prudential and capital treatment when used to match annuity liabilities.

Milliman consultants have drafted a briefing note that brings together the recent developments affecting the valuation and capital treatment of ERMs in the UK, particularly those brought about by the evolving prudential regulatory regime being put in place by the Prudential Regulation Authority (PRA) and the debates around the most appropriate technique for valuing the no-negative-equity-guarantee.

This paper by Milliman’s Robert Bugg and Paul Fulcher is relevant to life insurers with annuity liabilities who invest in, or are considering investing in, ERMs.

PRA’s Consultation Paper on modelling of the volatility adjustment for internal model firms

On 11 April, the Prudential Regulation Authority (PRA) issued a Consultation Paper in which it sets out its proposal to consider applications from internal model firms that include a Dynamic Volatility Adjustment. This proposal is relevant to Solvency II firms in the UK and the Society of Lloyd’s and its managing agents. It is also relevant to firms with, or seeking, Volatility Adjustment approval that use, or may develop in the future, a full or partial internal model to determine the Solvency Capital Requirement (SCR). Milliman’s Robert Bugg and Lyndsay Wrobel offer some perspective in this briefing note.




Extension of the Senior Managers and Certification Regime to insurers

In the United Kingdom, the Prudential Regulation Authority and the Financial Conduct Authority recently issued two complementary Consultation Papers, setting out their proposals to extend the Senior Managers & Certification Regime, which currently applies to the banking sector, to insurers. This article by Milliman consultants provides an extended summary of the proposed changes that will apply to Solvency II insurers, Insurance Special Purpose Vehicles and large Non-Directive Firms.




Issues in brief spring 2016: UK life insurance

The Spring 2016 edition of Milliman’s Issues in Brief features articles about the dynamic reporting of management information (MI), valuing lifetime mortgages, the Own Risk and Solvency Assessment (ORSA) process, and embedded value reporting.