According to a report earlier this year published by Grant Thornton (Global Insurers – Mergers & Acquisitions) "... improved macroeconomic conditions in developed countries, allied to the availability of attractive financing options is having a positive effect on [insurance] firms' appetite to re-enter the M&A market." They also suggest that domestic consolidation has emerged as a key theme in developed markets. We have witnessed more activity and consolidation in recent years in the insurance sector, particularly in Appleby's Guernsey, Isle of Man and Jersey offices.
Insurance practitioners planning a merger or acquisition need to consider when part of the target's business is conducted in Jersey that it is likely that the jurisdiction of the Jersey courts may overlap with the jurisdiction of foreign courts and that a Jersey scheme of transfer may be required in order that the business transfer is recognised in Jersey.
If a Jersey Scheme is Required?
Where it is proposed to transfer the whole or part of an insurance business carried on in or from within Jersey by a permit holder under the Insurance Business (Jersey) Law 1996 (Insurance Law) to another permit holder or insurer, a Jersey courtsanctioned scheme of transfer under article 27 of the Insurance Law is required.
The carrying on of insurance business in or from within Jersey includes:
"obtaining or seeking to obtain such business from a person incorporated, registered or resident in the island by means of a contract or arrangement with another person where: the sole or principal purpose of such a contract or other arrangement is the obtaining or seeking to obtain such business; and that other person gives effect to the contract or other arrangement in or from within the island."
The test for what constitutes carrying on insurance business in the Island mirrors the criteria for determining whether or not a Jersey insurance permit is required by an insurer. Therefore, it is usually safe to conclude that the Jersey courts will (subject to very limited circumstances) have jurisdiction in relation to a scheme to transfer business conducted by a Jersey insurance permit holder. Insurers should seek legal advice as to whether a proposed novation of insurance business represents a transfer of insurance business to be addressed through a court-sanctioned scheme pursuant to article 27 of the Insurance Law.
Jersey Scheme Procedure
A Jersey insurance transfer scheme must be sanctioned by the Royal Court of Jersey. The Insurance Law provides that a transferor party to a scheme is required to hold a permit issued by the Jersey Financial Services Commission (JFSC). Although the Insurance Law does not require a transferee party to a scheme to hold a permit, the JFSC will require a transferee to hold a permit prior to the transfer to it of business carried on in or from within Jersey.
Transfer Scheme Documentation
In order to consider a transfer scheme, the Insurance Law requires that the following documents are provided to the JFSC:
1. A Representation (a Jersey form of pleading), which commences the application;
2. Independent Actuary's Report;
3. Jersey Transfer Scheme Document;
4. Affidavits/witness statements;
5. Policyholder communication documents;
6. Legal Notice to be published in the Jersey Gazette stating that the application has been made; and
7. For Category A Permit holders under the Insurance Law the name and contact details of the principal contact for the overseas regulator that is considering the associated overseas transfer scheme.
Copies of the Representation and the independent actuary's report must be available to inspect or collect for at least 21 days beginning on the day that the Jersey Gazette notice is first published.
First Hearing (Royal Court of Jersey) – Directions
Paragraph 4(b) of Schedule 2 to the Insurance Law requires that a statement be sent to each policyholder and every member of the transferor and transferee of the scheme unless otherwise directed by the court. Such requirements can be extremely onerous on insurers where, for example, it may not be possible to definitively contact all policyholders or if the transfer will not materially affect the transferee's business. Invariably then, directions are sought from the court to dispense with the strict notification requirements.
The JFSC are afforded the right to speak at each court hearing and make objections to the proposals sought. The court when considering the directions sought will take comfort from the JFSC's stance, and so it is vital that the JFSC are provided with details of any waivers sought, the rationale for such requests and the number of Jersey policyholders. Provided the JFSC is satisfied, they will provide a letter of no objection to the parties seeking a transfer.
Second Hearing (Royal Court of Jersey) - Scheme Sanction
Assuming the Directions sought at the first hearing are granted and the notification requirements (as varied at the Directions Hearing) have been followed and the JFSC have maintained their stance of no objection, the Second Hearing should be more of a formality than the first, as the Scheme and its impact would have already been considered by the court.
Appleby have considerable expertise in relation to Jersey insurance transfer schemes and are often instructed by insurers carrying out multi-jurisdictional acquisitions in conjunction with our colleagues in Guernsey and Isle of Man, as Appleby is the only law firm practising in all three Crown Dependencies and has unparalleled insurance expertise in its Bermuda office. Large insurers often operate in all three Crown Dependencies and benefit from the continuity of our service.
The banking and asset finance team at Appleby have also drawn on our insurance team's experience by using analogous transfer procedures in landmark court-sanctioned banking business transfer schemes in Jersey.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.