Reinsurance: Court rejects request for group insurance takeover material
- Newsletter Article
- Published 19.10.2020
The NSWSC has rejected a reinsurer’s request to obtain documents related to a Trustees’ decision to change group insurers, which resulted in the reinsurer’s treaty being terminated.
Whilst the reinsurer was not successful in obtaining material sought in its application, the case nonetheless highlights the importance of an incumbent group insurer being aware of its reinsurance treaty notification obligations in the context of a change in group insurer.
A group insurer (the incumbent group insurer) and a reinsurer were parties to a reinsurance treaty made on 26 October 2017 (the Treaty).
The Treaty reinsured certain policies of group insurance referred to as the ‘Reinsured Master Policies’ (the Policies) that were issued by the incumbent group insurer to various Trustees (the Trustees) who were part of the same corporate group.
The Trustees informed the incumbent group life insurer of their decision to:
- appoint a new group insurer; and
- terminate the Policies between them with effect from 1 July 2020.
As a result, the incumbent group insurer informed their reinsurer that the Treaty between them would terminate on and from 1 July 2020 given the Trustee’s decision to terminate the Policies.
Article 1.5 of the Treaty provided that the incumbent group insurer:
‘…is not entitled to…sell or transfer or attempt to sell of transfer any of the [Policies]…without [the Reinsurer’s] prior written consent…’
The reinsurer sought documents from the incumbent group insurer to explore whether the life insurer may have acted in breach of Article 1.5 in the context of the Policies.
The incumbent group insurer responded that the termination of the Policies by the Trustees was not a sale or transfer of the Policies by the incumbent group insurer for the purposes of Article 1.5.
The reinsurer subsequently sought orders from the SC that it was entitled to documents directed to the Trustees’ decision to appoint a new group insurer under Article 20.2 of the Treaty or, alternatively, by way of preliminary discovery under rule 5.3(1) of the Uniform Civil Procedure Rules (NSW). These documents were said to be likely to cast light on whether the Trustees had appointed a new group insurer in place of the incumbent group insurer or, whether, Article 1.5 of the Treaty regarding selling or transferring the Policies had been breached.
Article 20.2 of the Treaty provided:
’…Either Party must, on request, with reasonable Notice, from the other Party, allow that Party and appoints agents such access to its premises and to its Records…as the Party may reasonably require and must, on a reasonable request but subject to any legal obligation to the contrary, provide copies of any Records to the other Party…’
Prior to the proceedings being heard the incumbent group insurer did provide certain additional material sought by the reinsurer, but did not provide all the material sought.
The proceedings therefore concerned the remaining documents, which the incumbent group insurer had not produced despite the reinsurer’s requests.
The Court found that the reinsurer had not established an entitlement to the documents sought under Article 20.2 or through preliminary discovery. The Court reached that conclusion primarily on the basis that the Court considered it was not in a position to determine the reasonableness of the reinsurer’s requests for documents (the onus essentially being on the reinsurer to establish the requests were reasonable) because it did not have the relevant takeover contractual documents that were to apply between the various parties from 1 July 2020.
The emphasis on the relevant takeover contractual documents was more important in circumstances where the Court considered that there was ‘nothing in the evidence’ that was before the Court which suggested that the arrangements between the Trustees and the incumbent group insurer involved a sale or transfer by the incumbent group insurer of the Policies. This was also a factor in the Court finding that the reinsurer had not established the preliminary discovery requirements which requires, amongst other things, a party to establish that they ‘may be entitled to make a claim’ for relief.
A trustee deciding to move its group insurance arrangements from one group insurer to another does not, of itself, involve the incumbent group insurer selling or transferring life policies (in the way contemplated by Part 9 of the Life Act) and the Court’s decision here appears to recognise this in the context of the Treaty wording in question, which referred to obtaining the reinsurer’s consent in the context of any selling or transferring of the group policies by the incumbent group insurer.
Nonetheless, the nature of the proceedings underscores the potential importance of notification obligations in a changeover of group insurer scenario. Typically, the reinsurer would be aware of the possibility of a changeover of group insurer during the superannuation trustee’s tender process. However, such a process may not always occur in a way which involves the reinsurer and does not, in any case, absolve the group insurer’s notification obligations (depending, of course, on how those notification obligations are framed). Notification obligations in reinsurance treaties should be checked when an incumbent group insurer becomes aware of a potential changeover of group insurer.