Transferring to ReAssure

Transcription

1 Transferring to ReAssure Your questions about the transfer of annuities answered Summary of the Scheme to transfer the Annuity Business of HSBC Life UK Limited to ReAssure Ltd

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3 Contents 1 1. Your Questions Answered 2 Section 1 What s happening and why? 2 Section 2 More about ReAssure and Admin Re 3 Section 3 More about the Transfer Process 4 Section 4 More about the Independent Expert 6 Section 5 Will there be any changes to the administration of my policy? 7 Section 6 Special Circumstances 8 Section 7 Your ongoing relationship with HSBC 9 Section 8 More about the Guernsey transfer 10 Section 9 What happens next? Glossary Summary of the Scheme and Independent Expert report Legal Notice 28

4 2 Your Questions Answered Section 1 What s happening and why? 1.1. What are the proposed changes? HSBC Life UK Limited ( HSBC Life ) proposes to transfer part of its pension and annuity business to ReAssure Limited ( ReAssure ) (the transfer ). This process is known as a Part VII transfer When will the transfer happen? If approved by the High Court of Justice of England and Wales ( Court ), the transfer is scheduled to take effect on the Effective Date. It is expected that this will be 31 August HSBC Life and ReAssure can agree to defer the Effective Date until after 31 August In that case, the transfer should take place no later than 2 November Any change to the Effective Date will be announced on the ReAssure and HSBC Life websites. The parties would need to obtain Court approval to extend the Effective Date beyond 2 November 2015 if they want the Scheme to become effective after GMT on that date Which policies are transferring? The following pension policies are transferring: `` Individual personal pensions (including Buy-out Policies set up as a result of the winding up of the HSBC Unit Trust pension schemes) `` Group personal pensions `` Individual stakeholder pensions `` Group stakeholder pension `` Trustee investment plans linked to executive pension plans `` Annuities Any other HSBC policies you may hold that are not listed above will be unaffected and will continue to be administered by HSBC. If you have been written to then it is likely you have, or have an interest in, one of these products.

5 Why is HSBC doing this? Following a strategic review, HSBC has decided to cease providing insured pensions in the UK. This decision is part of our ongoing programme to simplify HSBC and follows our decision in 2013 to close this product range to new customers in light of increased regulatory change. Section 2 More about ReAssure and Admin Re 2.1. What type of company is ReAssure? ReAssure is a UK life assurance and pensions company, which was incorporated in You can find out more about it by visiting or by calling ReAssure is part of Admin Re, a company that specialises in providing services for the management of insurance companies, often bringing the business of these companies together under one roof. Admin Re is owned by the global insurer and reinsurer Swiss Re Do ReAssure and Admin Re have extensive operations in the UK? `` ReAssure has nearly 1.7 million policies (as at 31 December 2014). `` ReAssure looks after investments of over 26 billion on behalf of its customers (as at 31 December 2014). `` ReAssure policies are administered from Admin Re service centres in Shropshire and Hertfordshire. `` Admin Re employs over 1,900 staff in the UK in 4 locations. `` Admin Re administers the policies of over 3 million customers (as at 31 December 2014), on behalf of a number of insurance companies Why did HSBC choose ReAssure for this? ReAssure is a part of Admin Re, a subsidiary of the Swiss Re group. Admin Re specialises in acquiring and running books of life and pensions policies from other providers who are no longer actively writing new business. As this is a core part of its future operation, Admin Re is committed to adapting its computer systems to the changing UK pensions landscape, and to developing ReAssure s ongoing pensions proposition. Admin Re also has extensive experience of carrying out systems migrations and transfers of business, and is well-suited to ensuring these complex processes are carried out smoothly.

6 4 Section 3 More about the Transfer Process 3.1. What s the transfer? It is a process under Part VII of the Financial Services and Markets Act 2000 that enables groups of insurance policies to be moved between two insurers. The insurers involved can either be in the same insurance group or from different corporate groups. An application must be approved by the Court before the transfer can go ahead. The applicable regulations require the companies to appoint an Independent Expert, approved by the Regulators, who looks at the impact of the proposed transfer on the various groups of affected policyholders, and submits a report to the Court. Policyholders must be notified and given time to consider the proposals, and they have a right to object or raise concerns if they feel they would be adversely affected Is there an opportunity to vote on these proposals? For a Part VII transfer process, there is no vote on the proposals. However, if you think you may be adversely affected by the proposals, then you can express an objection or raise your concern. See questions 3.4 and 3.7 below for more on this Where and when will the Court Hearing take place? The Court Hearing will be at the High Court of Justice, 7 Rolls Building, Fetter Lane, London, EC4A 1NL on 23 July You ll be able to check on the HSBC website and the ReAssure website or by calling after this date for information about the outcome of the hearing What will happen at the Court Hearing? The Court will consider whether the transfer adversely affects policyholders and whether it is appropriate to allow this transfer. The judge will review the witness statements and evidence presented by the companies, and consider the reports of the Independent Expert and the Regulators. Time will be allocated to hear any objections or concerns put forward (whether in writing, by telephone, or in person) by affected policyholders or any other person who believes that they would be adversely affected by the proposals. The judge must decide whether or not it is appropriate to approve the transfer, taking all of the evidence into account. If the judge does approve the transfer, then a Court Order is made which means the Scheme will come into effect at a time specified in the Order I m a Guernsey resident policyholder. How will the proposed transfer affect me? If you re a Guernsey resident policyholder a separate Court hearing relating to the proposed transfer will be held. The Guernsey hearing will take place at the Royal Court of Guernsey at 09:30 BST on 27 July The process at this hearing will be similar to

7 5 the hearing at the Court but will only relate to the policies of Guernsey residents. Further details are included in section 8. Please also see the Guernsey Supplement enclosed What happens if I don t want my annuity to transfer to ReAssure Limited? If you believe you may be adversely affected as a result of the transfer, then you re entitled to object or raise your concerns either in writing or by telephone in advance, or in person at the Court Hearing. You may choose to appoint legal counsel to attend the Court Hearing on your behalf. We would encourage you to set out your objection or concerns to us in writing at HSBC Life (Part VII Transfer), Selectapost 54, Sheffield, S97 3GG. Alternatively, if you have objections or concerns or intend to appear or to be represented at the Court Hearing, you should notify Norton Rose Fulbright LLP, the solicitors acting for HSBC, of your intention and the reasons. You should contact them by writing to 3 More London Riverside, London, SE1 2AQ, (Ref:OROS/LN63354), as soon as possible, and in any event before 23 July Alternatively, any objections or concerns relating to the transfer notified to us by telephone to our helpline on (the cost to call 0345 numbers is the same as calling a normal local or national landline), or in writing, will also be included in the information supplied to the Court What do you mean by adversely affected? Any types of effect on policyholders may be considered by the Court. This includes changes to expected benefits, the financial security of the companies involved, or changes to the administration of the transferring policies. For any group of policyholders affected by a transfer, there may be some changes for the better and some for the worse. If there are some changes for the worse, this does not necessarily mean that the transfer is unfair or unreasonable, as they might be outweighed by other benefits, or they might be extremely small, or they may only occur infrequently. The Independent Expert considers the materiality of any adverse changes based on their size or likelihood of occurring and provides his conclusions in his report What will happen if the Court does not approve the transfer? If the proposed transfer is rejected, your policy will remain with HSBC. If the transfer is delayed for any reason then we will inform policyholders of this via the HSBC and ReAssure websites. If there is expected to be a protracted delay, or the transfer is rejected, we will also write to affected policyholders to let them know Will I be charged extra for any of this? No, you ll not be asked to bear the costs of the transfer. HSBC Life and ReAssure meet the costs and fees of carrying out the transfer

8 6 Section 4 More about the Independent Expert 4.1. Who is the Independent Expert? The Independent Expert is Dr David Hare of Deloitte, an international firm which provides auditing, consulting, financial advisory, risk management, tax, and related services. Dr Hare is a UK-qualified actuary (1988) with over 28 years of experience in life insurance, actuarial, management and strategic development roles. He joined Deloitte as a partner in May 2012 and is now head of the part of Deloitte s actuarial practice that is responsible for Independent Expert engagements, with-profits, and regulatory services What s his role? Dr Hare has been appointed to give his opinion on the likely effect of the proposals on policyholders. His appointment has been approved by the Regulators, following consultation with the FCA. His report is impartial, based on a thorough scrutiny of the proposals and the businesses of HSBC Life and ReAssure. Both companies have provided him with access to key staff and information he has requested, both private and public How do I know he is independent? The Independent Expert s appointment has been approved by the Prudential Regulation Authority, following consultation with the Financial Conduct Authority, and independence is one of the criteria that they use to assess his suitability. Neither Dr Hare nor any of his immediate family hold any policies, investments, shareholdings or have any other financial interests with either of HSBC or any group company or SwissRe or any group company. Dr Hare s overriding duty of responsibility is to the Court, and not HSBC Life or ReAssure. His report must be impartial. We have included a summary of his report with this pack, but you can download a full copy of the Independent Expert s report at the HSBC website, and the ReAssure website If you would like a paper copy sent to you then please contact us on (the cost to call 0345 numbers is the same as calling a normal local or national landline).

9 7 Section 5 Will there be any changes to the administration of my annuity? 5.1. Who do I contact after the transfer for a query on my product or to make changes? The administration of your annuity won t change as a result of the transfer so continue to contact Hannover Re on The Service Contract that HSBC currently has in place with Hannover Re will transfer to ReAssure Will there be any changes to the payments I receive from my annuity? No changes will be made to your annuity as a result of the transfer When will I receive my annual P60 mailing? You ll continue to receive your annual P60 mailing shortly after the end of each tax year Are there any changes to the terms and conditions of my policy? The transfer won t change the terms and conditions of your annuity or the payments that you receive Will my policy have the same tax status after the transfer? Yes.

10 8 Section 6 Special Circumstances 6.1. What should I do if I m bankrupt or about to be declared bankrupt? You should also show this pack to the trustee in bankruptcy, receiver or administrative receiver I received this letter as a trustee of a transferring policy. What should I do? If you re able to, please show a copy of this pack to the policy beneficiaries. As potentially affected parties, both you and the beneficiaries are entitled to object to, or raise concerns about, the proposed transfer What should I do if the policy has been assigned? If you re able to, please show a copy of this pack to the policy assignee. As potentially affected parties, both you and the assignee are entitled to object to, or raise concerns about, the proposed transfer I have a Power of Attorney in respect of a transferring policy. What should I do? There will be no change. The Power of Attorney will be recorded by ReAssure and will continue according to its terms. As potentially affected parties, both you and the policyholder are entitled to object to, or raise concerns about, the proposed transfer My pension funds are earmarked under divorce proceedings. Are there any specific actions I need to take as a result? No, you just need to ensure you keep ReAssure updated with any changes to your details or personal circumstances. If you re able to, please show a copy of this pack to the beneficiary of the earmarking order. As potentially affected parties, you re both entitled to object to, or raise concerns about, the proposed transfer.

11 9 Section 7 Your ongoing relationship with HSBC 7.1. How will this change affect my other products with HSBC, e.g. my current account or credit card? Your other HSBC products will be unaffected by this transfer I have other HSBC pensions and/or unit trust policies. Which ones are covered by this letter pack? The cover letter shows the number(s) of the policy(ies) that we are writing to you about. If you have more than one policy of the same type, they will all be covered by this letter pack. We will send a separate letter pack for any other policy type you have with us that will be affected by the transfer to ReAssure. If you think you may be adversely affected by the proposals in relation to any of your policies, then you can express an objection or raise your concern. Section 3.6 sets out how you can do so. We are not writing to holders of policies that are not scheduled to transfer. Please refer to paragraphs 5.4, 5.6 of the enclosed summary of the Independent Expert s report for further detail on the likely impact on non-transferring policies I have a Small Self-Administered Scheme (SASS) or a Self-Invested Personal Pensions (SIPP) policy with HSBC. Will my policy benefits be affected? SASS and SIPP policies are not transferring and will be unaffected by this transfer Will I still be able to get advice on my plan from an HSBC advisor? No, HSBC advisers are only able to discuss products offered by HSBC and therefore they won t be able to provide you with advice about your policy after the transfer. You can find an advisor near you by looking on choosing-a-financial-adviser or by calling You may have to pay for advice.

12 10 Section 8 More about the Guernsey transfer 8.1. How does the Guernsey Scheme differ from the UK transfer? In Guernsey the proposed transfer will be carried out under the Insurance Business (Bailiwick of Guernsey) Law A separate application will be made for the approval of the Guernsey transfer by the Royal Court of Guernsey. The summary of the transfer in this booklet applies equally to the Guernsey transfer as it does to the UK transfer because each of the schemes are being effected on the same terms. The summary of the Independent Expert s report and his full report also applies equally to the Guernsey transfer as to the UK transfer. If you believe that you ll be adversely affected by the Guernsey transfer, you re entitled to be heard by and raise your objection or concern to the Royal Court of Guernsey at the relevant hearing. If you do wish to object, or raise your concern, at the Guernsey hearing, you should notify Natasha Knapp of your intention to do so and your reasons for doing so. You can contact Natasha Knapp by writing to Carey Olsen, Carey House, Les Banques, St Peter Port, Guernsey, GY1 4BZ or by calling This should be done as soon as possible and in any event before 27th July By informing us, we will be able to let you know about any changes that may be made in relation to the Guernsey hearing, for example a change of date. We may also be able to deal directly with any concerns you have. The final Court hearing for the approval of the Guernsey transfer scheme is expected to take place as follows: 09:30 BST on 27 July 2015 at the Royal Court of Guernsey, The Royal Court House, St Peter Port, Guernsey, GY1 2PB. Alternatively any objections or concerns in relation to the Guernsey transfer notified to us by telephone to our helpline on (the cost to call 0345 numbers is the same as calling a normal local or national landline), or in writing, will also be included in the information supplied to the Guernsey Royal Court. If you re a Guernsey resident, please read the Guernsey Supplement enclosed. Please see the Guernsey Supplement for more details.

13 11 Section 9 What happens next? 9.1. I can t find the answer to my question in this booklet. Where can I find out more? We hope that the information we have provided has helped you to understand the proposals. Both HSBC and ReAssure have published further information on their websites, and There you can download a full version of the legal terms of the transfer, the full Report of the Independent Expert, and the policyholder communications pack. Alternatively call us on and we will send you this information. HSBC has set up a dedicated helpline for customers who have questions or wish to raise concerns or objections related to the proposed transfer on (the cost to call 0345 numbers is the same as calling a normal local or national landline). This helpline will be available from 8.00 to Monday to Friday. We will also publish on the websites copies of any Supplementary Reports that the Independent Expert writes before the Court Hearing date. However, if you do think you may be worse off as a result of the transfer please see question 3.6 and 3.7 or turn to the Legal Notice at the back of this booklet for information about how to make your objection or concern known to us How will I know if the transfer has been approved? We will announce the outcome of the Court application on the ReAssure website and the HSBC website following the Court Hearing due on 23 July However it is possible that further preparation and systems testing is necessary before the transfer takes place, which will mean the transfer may take place after 31 August. In that case the transfer should take place no later than 2 November. Any changes or information on the progress of the transfer will be announced on and You should check this website for any changes or updates or by calling our dedicated HSBC helpline on (the cost to call 0345 numbers is the same as calling a normal local or national landline). If the application is successful then the transfer should take place on the Effective Date. The transfer won t make any changes to the administration of your policy that is carried out by Hannover Re on our behalf. The Service Contract that HSBC currently has in place with Hannover Re will transfer to ReAssure. 9.3 What is the cost of calling an 0345 number The cost to call 0345 numbers is the same as calling a normal local or national landline. If your tariff or call package offers free or inclusive calls to landlines, numbers starting with 03 will be included in the exact same way.

14 12 Glossary Companies mean HSBC Life and ReAssure. Court is the High Court of Justice in England and Wales. Court Hearing is the Hearing at the High Court of Justice of England and Wales at which the final decision to approve or disapprove the Scheme is made. Effective Date is 31 August 2015, the date on which the Scheme is expected to become effective (subject to the approval of the Court). HSBC Life and ReAssure can agree to defer the transfer until after 31 August In that case, the transfer should take place no later than 2 November Any change to the date of the transfer will be announced on the ReAssure and HSBC Life websites. The parties would need to obtain Court approval to extend the date the transfer becomes effective beyond 2 November 2015 if they want the Scheme to become effective after GMT on that date. Existing ReAssure Policies are the policies in the ReAssure long-term insurance fund prior to the Effective Date. FCA is the Financial Conduct Authority which replaced the FSA on 1 April 2013 and has an objective to protect consumers of financial services, protect and enhance the integrity of the UK financial system and promote effective competition in the interests of consumers. FSA is the Financial Services Authority, which was the independent, non-governmental body that regulated the UK insurance industry which was replaced by the FCA and PRA from 1 April FSMA is the Financial Services and Markets Act Guernsey Scheme is an application being made to the Royal Court of Guernsey under the Insurance Business (Bailiwick of Guernsey) Law 2002 to transfer to ReAssure any of the pensions business of HSBC Life that falls under Guernsey jurisdiction. HMRC is HM Revenue and Customs, the Government department responsible for collecting and administering taxes. Independent Expert refers to David Hare of Deloitte MCS Limited whose appointment, which has been approved by the Regulator, involves producing a scheme report under the requirements of the FSMA, reflecting the guidance provided by SUP 18.2 of the Regulators Handbooks. Non-Transferring Policies are all the policies currently in HSBC Life that are not transferring under the Scheme.

15 13 PRA is the Prudential Regulation Authority which replaced the FSA on 1 April The PRA is responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms. Regulator(s) means, the applicable regulator(s) of the UK insurance industry. Prior to April 2013, this refers to the FSA and from April 2013 this refers to, as the context requires, the PRA, the FCA or both. Supplementary Report is a report produced in advance of the Court Hearing, to consider the impact of the Independent Expert s conclusions of events that have happened subsequent to the release of the initial Report. Treating Customers Fairly (TCF) is the framework under which the Regulator will assess whether financial services firms treat their retail customers fairly. Transfer means the legal transfer of the Transferring Policies from HSBC Life to ReAssure Limited Transferring Policies are all transferring HSBC Life Policies.

16 14 Summary of the Scheme and Independent Expert report In the High Court of Justice Chancery Division Companies Court In the matter of HSBC Life (UK) Limited and In the matter of ReAssure Limited and In the matter of Part VII of the Financial Services and Markets Act 2000 Summary of the Schemes and the report

17 1. Introduction HSBC Life (UK) Limited (HLUK) is proposing to transfer all of its group and individual pensions policies to ReAssure Limited (ReAssure) through two insurance business transfer schemes (the Schemes). (a) The Main Scheme will be carried out through the High Court of Justice in England (the High Court). This will transfer all of the individual and group pensions policies of HLUK to ReAssure, except where a policy is held by a customer who resides in Guernsey. (b) The Guernsey Scheme will be carried out through the Guernsey Royal Court (the Guernsey Court). This will transfer the group and individual pensions policies of policyholders who reside in Guernsey to ReAssure. 1.2 This document sets out a summary of the effect of the Schemes and of the report prepared by the independent expert (see paragraph 5.1 below) on the Schemes (the Report). 1.3 This document is only a summary. Full details of both the Schemes and the Report can be found in the complete versions which are available free of charge online at or by telephoning our dedicated helpline on (the cost to call 0345 numbers is the same as calling a normal local or national landline) or by writing to HSBC Life (Part VII Transfer) Selectapost 54, Sheffield, S97 3GG. 2. Background of HLUK and ReAssure 2.1 HLUK is a member of the HSBC group of companies which includes HSBC Bank. As part of that group, HLUK sold life assurance, pensions, annuities and other long term products through the HSBC group network and through third party distributors. HLUK has ceased to write new pensions business, but it does still take on new customers who are joining existing group pension schemes run by HLUK. 2.2 The individual and group pensions business includes: (a) Individual Retail Pensions; (b) Unit Trust Pensions; (c) Group Pensions; (d) Annuities; and (e) Executive Pension Policies.

18 ReAssure is a member of the Swiss Re group of companies. ReAssure acquires individual closed books of long term, life and pensions business, either through reinsurance or acquisitions (like the one taking place through the Schemes). 2.4 ReAssure and HLUK are both authorised and regulated by the Prudential Regulation Authority (PRA) and they are also regulated by the Financial Conduct Authority (FCA). Before 1 April 2013 they were authorised and regulated by the FCA and PRA s predecessor, the Financial Services Authority (FSA). 2.5 On 11 June 2014, HLUK agreed to sell and ReAssure agreed to buy HLUK s pension business. Since that date, ReAssure has provided reinsurance to HLUK in respect of this business. As the sale is of an insurance portfolio, the transfer has to be effected by way of the Schemes. 3. Process and timings of the Schemes 3.1 The proposed timings for the Schemes are. Main Scheme Guernsey Scheme High Court hearing 23 July July 2015 Proposed Effective Date (when the policies will transfer to ReAssure) 31 August 2015* 31 August 2015 * It is proposed the Effective Date will be on 31 August 2015 at BST or such other date thereafter as the boards of HLUK and ReAssure shall agree, up to GMT on 2 November If the Main Scheme has not become effective by 2 November 2015 the parties would need to obtain Court approval to extend the Effective Date beyond that. 3.2 The Main Scheme will not go ahead unless the High Court approves it on 23 July The Guernsey Scheme will not go ahead unless the Guernsey Court approves it and the Main Scheme is approved by the High Court. 3.3 If the High Court imposes any change or conditions to the proposed Scheme, the Scheme will not take effect unless HLUK and ReAssure consent.

19 17 4. Summary of the Schemes 4.1 The following is a summary of the main points of the Schemes. The full version of the scheme document is available free of charge online at or by telephoning our dedicated helpline on (the cost to call 0345 numbers is the same as calling a normal local or national landline) or by writing to HSBC Life (Part VII Transfer) Selectapost 54, Sheffield, S97 3GG. 4.2 In addition, HLUK has prepared a series of policyholder communications which are available at The Effect of the Schemes 4.3 As stated above, the Schemes are intended to transfer all of the group and individual pensions business written by HLUK, from HLUK to ReAssure. Benefits and claims paid by ReAssure after the Effective Date 4.4 It is intended that from the Effective Date, all the rights and obligations arising from HLUK s group and individual pensions business will automatically transfer to ReAssure and will no longer rest with HLUK. This means that ReAssure will be responsible for paying all benefits and meeting all the other obligations which were previously HLUK s in relation to the group and individual pensions business. Exceptions 4.5 Despite the intention explained in 4.4 above, there may be a small number of policies which fall outside the Scheme. These would be Excluded Policies or Residual Policies, as described in more detail in the full version of the Scheme. We do not expect there to be any Excluded Policies and any Residual Policies will transfer as soon as they can. Changes to Policy Terms and Conditions 4.6 The Main Scheme allows ReAssure to make certain changes to the terms and conditions of the transferring policies. Some of these changes relate to the way the price of units in the linked funds is calculated (which will move from a single price for a unit to separate prices for the same unit depending on whether the fund is expanding or contracting). Other changes relate to the cut-off times for transactions (e.g. for buying, selling or switching units), which will move to 5pm on each business day. This change ensures that the cut-off times of the policies which transfer will be consistent with those of ReAssure s existing policies. These changes will not affect holders of annuity policies.

20 18 Continuity of proceedings or litigation 4.7 From the Effective Date, any current proceedings or litigation which are brought by or against HLUK in connection with the business transferred by the Scheme shall be continued by or against ReAssure, and ReAssure shall be entitled to all defences, claims, counterclaims and rights of set-off that would have been available to HLUK. 4.8 From the Effective Date, any judgement, settlement, order or award under current or past proceedings obtained by or against HLUK in relation to the business transferred by the Scheme shall be enforceable by or against ReAssure in place of HLUK. Unit trust products changes to the HSBC Personal Pension Unit Trust and the HSBC FSAVC Unit Trust products 4.9 Before the Effective Date, these products will be wound up. In respect of those customers who so elect, the proceeds will be reinvested in new buy out pensions policies written by HLUK, which will then transfer to ReAssure in the same way as the rest of group and individual pensions business. Customers who do not wish to have their unit trust proceeds reinvested with HLUK (and transferred to ReAssure) have a right to transfer their benefits elsewhere. You can request full details of how this will work free of charge by visiting or by telephoning our dedicated helpline on (the cost to call 0345 numbers is the same as calling a normal local or national landline) or by writing to HSBC Life (Part VII Transfer) Selectapost 54, Sheffield, S97 3GG. Costs and Expenses 4.10 None of the costs and expenses relating to the preparation of the Scheme, the Guernsey Court or High Court processes will be borne by the policyholders or any of the funds to which their premiums are allocated. 5. Summary of the Report 5.1 In agreement with the PRA, ReAssure and HLUK have appointed Dr David Hare, of Deloitte MCS Limited, as the Independent Expert to provide a report to the Court on the effects of the Schemes on the policyholders of HLUK and ReAssure. 5.2 The summary in this section is subject to the same limitations on its use as those set out in the Report. The Report contains the reasoning behind Dr Hare s conclusions, including his assumptions and some of the detail which has been omitted from this summary. The Report also includes further information regarding HLUK and ReAssure which has not been included within this summary. While Dr Hare is satisfied that this summary provides an appropriate synopsis of the Report, reliance on this summary alone may not give you the whole picture. Copies of the full Report and any supplementary Report can be obtained free of charge at or by

21 telephoning our dedicated helpline on (the cost to call 0345 numbers is the same as calling a normal local or national landline) or by writing to HSBC Life (Part VII Transfer) Selectapost 54, Sheffield, S97 3GG. 19 Who could be affected by the Schemes? 5.3 Dr Hare has considered the effects of the Schemes on different groups of policyholders, including whether the position of any group of policyholders is likely to be materially adversely affected. What is meant by materially adversely affected? The word material is not uniquely defined and so, where there are adverse changes, Dr Hare has attempted to give some context as to their size or likelihood of occurring. If a potential effect is very unlikely to happen and does not have a large impact, or if it is likely to happen but has a very small impact, he does not consider it material. 5.4 The Report identifies three groups: (a) Transferring Policies which are held by HLUK policyholders (including those who live in Guernsey) and are transferring to ReAssure; (b) Non-Transferring Policies which are held by HLUK policyholders and are not transferring to ReAssure; and (c) Existing ReAssure Policies which are held by ReAssure policyholders who are already customers of ReAssure. 5.5 The Report sets out Dr Hare s analysis and conclusions on the likely effect of the Schemes on the security of policyholder benefits, the benefit expectations of policyholders, service standards, investment management and the governance arrangements in place to ensure policyholder interests are protected in future. Impact on the Transferring Policies. Benefit Expectations 5.6 The significant majority of Transferring Policies are unit-linked, where benefit expectations will depend, to an extent, on management discretion in relation to the level of charges. Other than as set out in paragraph 4.6 above and discussed below, the Schemes will not change the terms and conditions of unit-linked Transferring Policies. In particular, immediately following the implementation of the Schemes, the unit-linked Transferring Policies will be invested in unit-linked funds within ReAssure that have been established to replicate the funds that they were previously in within HLUK and the value of each policy s unit holding and the level of fund charges will be unchanged by the Schemes. 5.7 The Schemes will change the pricing basis for units in a large number of funds from a single swinging price (i.e. a single price for a unit) to a bid or offer basis (i.e. separate prices for the same unit, depending on whether the fund is expanding or contracting). Dr Hare concluded that, while this may change the amount that a particular policyholder receives on a particular day in the future, he was satisfied that the change

22 20 does not have a systematic impact on benefit expectations for policyholders. In particular, he noted that both approaches to pricing are used in the industry as a means to ensure that the amount paid out to policyholders is fair to both policyholders who are exiting the fund and those who remain in the fund and that he was satisfied that any policyholder gain or loss resulting from the difference in these bases does not form part of the reasonable benefit expectations of policyholders. 5.8 Some of the Transferring Policies have chosen a Lifestyling option, where funds are automatically switched to new target funds at a particular stage in the policy s lifetime (for example, reducing the proportion of equity assets held as a policyholder approaches retirement). Following the Scheme, these changes to the overall funds held will continue to be staggered over a period of five years but will be effected by means of five annual switches, rather than 60 monthly switches. As this does not change the overall aim of the Lifestyling option and the switch is completed in a similar time period, Dr Hare is satisfied that this change does not have a material effect on policyholder benefit expectations. In addition, new bespoke Lifestyling options that could be arranged on a scheme-by-scheme basis will not be offered by ReAssure, although existing arrangements will be maintained. This does not represent a change to the terms and conditions of the Transferring Policies and the same economic effect could be achieved through individually-requested fund switches. As a result, Dr Hare is satisfied that this change does not represent a materially adverse effect on benefit expectations. 5.9 In addition, the Schemes will result in a number of minor changes to allow the policies to be administered on the administration system used by ReAssure. Most notably, it will result in small changes to the time at which the unit prices applicable to a given transaction are calculated and will result in changes to non-standard premium payment frequencies. Dr Hare has considered these changes and concluded that they do not have a materially adverse effect on the benefit expectations of the holders of the Transferring Policies The Schemes also provide ReAssure with certain powers (such as the ability to merge, close or divide unit funds and to make certain modifications to investment objectives) to facilitate the efficient management of the unit-linked funds, where such changes are not precluded by the appropriate policy terms and conditions. The Schemes include safeguards to help ensure that, where such powers are exercised, the interests of policyholders are considered and appropriate actions are taken to avoid an adverse impact. Dr Hare has considered these changes and the associated safeguards and is satisfied that these changes do not constitute a materially adverse effect on the benefit expectations of the holders of the Transferring Policies The remaining Transferring Policies are non-profit in nature, with little scope for management discretion. The Schemes will not change the benefits payable, or the terms and conditions of the non-linked Transferring Policies.

23 5.12 Taking account of the above considerations (as outlined in more detail in Chapter 6 in the Report), Dr Hare is satisfied that the Schemes will not materially adversely affect the benefit expectations of the holders of the Transferring Policies. 21 Benefit Security 5.13 Dr Hare also considered the potential impact of the Schemes on the benefit security of the policyholders of the Transferring Policies. He concluded that he was satisfied that the Schemes will not have a materially adverse impact on the benefit security for these policyholders as: (a) following the Schemes, the benefit security of these policies will be supported by the capital held in ReAssure under the ReAssure Capital Management Policy, which targets a level of capital significantly in excess of that required under the relevant regulations. ReAssure would have been able to meet the capital target under its Capital Management Policy immediately following the implementation of the Schemes, had the Schemes become operative on 30 June 2014; (b) while the level of capital targeted by the ReAssure Capital Management Policy differs from that which is targeted by HLUK, the ReAssure target is comparable with others that Dr Hare has seen in the industry and requires capital to be held in addition to a regulatory capital requirement that is already set at a level intended to protect policyholders in a severe scenario. In addition, the Capital Management Policy highlights actions that would be taken to improve the capital position, should the targets be missed (such as limiting the capital available to pay dividends and seeking capital from the Swiss Re group, of which ReAssure is a part); and (c) the Schemes result in the Transferring Policies being exposed to the risks already held within ReAssure. While these risks differ from those held within HLUK, the ReAssure Capital Management Policy includes targets designed to reflect ReAssure s risk profile. Impact on the Non-Transferring Policies. Benefit Expectations 5.14 the Schemes will not alter the terms and conditions of any of the policies remaining in HLUK. In addition, there will be no change to the way in which any discretionary charges are set or the expected size of these charges Taking account of the above reasons, as expanded upon in Section 7 of the Report, Dr Hare is satisfied that the Schemes will not have any material effect on the benefit expectations of the holders of the Non-Transferring Policies. Benefit Security 5.16 Dr Hare also considered the potential impact of the Schemes on the benefit security of the holders of Non-Transferring Policies. He concluded that he was satisfied that the Schemes will not have a materially adverse impact on the benefit security for these

24 22 policyholders as these policies do not transfer under the Schemes and, following the Schemes, will continue to be supported by the capital targeted under the HLUK capital policy. This policy targets a level of capital significantly in excess of the regulatory capital requirements and neither the capital targets nor any of the governance related to these targets will change as a result of the Schemes. HLUK would have been able to meet the capital targets under its risk appetite framework immediately following the implementation of the Schemes, had the Schemes become operative on 30 June Impact on the ReAssure Policies. Benefit Expectations 5.17 The Existing ReAssure Policies include a wide range of product types and the extent to which management discretion could have an impact on policyholder benefits varies significantly. In particular, Dr Hare considered the potential effects of the Schemes on the benefit expectations of the holders of with-profits, unit linked and non-linked non-profit Existing ReAssure Policies separately Dr Hare is satisfied that the Schemes will not have a material adverse effect on the benefit expectations of the holders of with-profits policies already held by ReAssure as: (a) there will be no change to the way in which discretionary benefits (such as regular and terminal bonuses) are calculated or the calculation of the asset share of any policy; (b) the benefits payable on such with-profits policies can depend to an extent on the financial position of the fund in which they are held, but the Schemes are not expected to have any impact on the financial position of the funds; and (c) there is no change to the way in which expenses are allocated to the with-profits funds, the sources of profit that will be allocated to policyholders or the principles governing the management of each of the funds. The costs of the Schemes are not being met by the with-profits funds Dr Hare is satisfied that the Schemes will not have a material adverse effect on the benefit expectations of the policyholders of unit-linked policies already held by ReAssure as: (a) immediately after the implementation of the Schemes, the unit-linked policies in ReAssure will remain invested in the same unit-linked funds as previously, with the same number and value of units, and with the same range of fund choices available to them; (b) the value of each policy s unit holdings will be unchanged by the Schemes, as will the pricing principles used for each unit-linked fund. The level of fund charges will also be unchanged by the Schemes; (c) there will be no change to the unit pricing principles, investment mandates, charges or taxation of any unit-linked fund as a result of the Schemes; and

25 23 (d) any future changes to unit-linked funds will be subject to the existing governance processes in place in ReAssure, including consideration of the consistency of any change with the TCF regulations Dr Hare is satisfied that the Schemes will not have a material adverse effect on the benefit expectations of the holders of non-profit policies already held by ReAssure as the benefits payable under these policies are not impacted by management discretion and there are no changes to their terms and conditions as a result of the Schemes. Benefit Security 5.21 Dr Hare also considered the potential impact of the Schemes on the benefit security of the policyholders of Existing ReAssure Policies. He concluded that he was satisfied that the Schemes will not have a materially adverse impact on the benefit security for these policyholders as: (a) these policies do not transfer under the Schemes and, following the Schemes, will continue to be supported by the capital targeted under the ReAssure Capital Management Policy. This policy targets a level of capital significantly in excess of the regulatory capital requirement and neither the capital targets nor any of the governance related to these targets will change as a result of the Schemes. ReAssure would have been able to meet the capital targets under its Capital Management Policy immediately following the implementation of the Schemes, had the Schemes become operative on 30 June 2014; (b) in the event that the Schemes are approved, the policyholders of Existing ReAssure Policies will be exposed to the risks associated with the Transferring Policies. This results in a change to the extent of contagion risk the risk of losses in respect of one block of business or fund leading to losses on another block of business or fund within ReAssure and to which these policyholders are exposed. The level of capital targeted under the ReAssure Capital Policy includes a target based on a percentage of the Pillar 2 capital requirement, which, in turn, is based on the risks to which ReAssure is exposed. As a result, changes in the risk profile as a result of the Schemes will be reflected in the underlying Pillar 2 capital requirement and the ReAssure Capital Policy target. As a result, the extent of change in contagion risk is limited, provided ReAssure can meet the target under its capital policy. As discussed above, ReAssure would have been to be able to meet its capital target whether the Schemes are approved or not had the Schemes become operative on 30 June 2014; and (c) the Schemes will not alter the extent or availability of the existing capital support arrangement in place within ReAssure, in respect of one of the with-profits funds in ReAssure. These policies do not transfer under the Schemes and, following the Schemes, will continue to be supported by the capital targeted under the ReAssure Capital Management Policy. This policy targets a level of capital significantly in excess of the regulatory capital requirement and neither the capital targets nor any of the governance related to these targets will change as a result of the Schemes. ReAssure

26 24 would have been able to meet the capital target under its Capital Management Policy immediately following the implementation of the Schemes, had the Schemes become operative on 30 June Will the Schemes affect levels of service, investment management or governance? 5.22 The Schemes will result in the administration of the Transferring Policies becoming the responsibility of ReAssure. For all of the Transferring Policies other than the annuities in payment, ReAssure intends to enter into a servicing arrangement with another company in the Swiss Re group of companies, similar to arrangements that are already in place in respect of a substantial proportion of the existing ReAssure Policies As a result of the move to the administration system used for ReAssure policies, there will be certain changes to the way in which policies can be administered and serviced on an ongoing basis. In particular: (a) following the Schemes, holders of Transferring Policies will no longer be able to service their policy using the HSBC internet site, and ReAssure does not offer a comparable facility. This service is currently available to the policyholders of certain Transferring Policies who have registered for this service. Recent statistics show that only a small percentage of Transferring Policyholders have made use of this facility to change their policies. Following the Schemes, these policyholders will be able to service their policies using a freephone number, and will be able to access detailed fund information online. While the removal of the online capability represents a reduction in the servicing capability for the Transferring Policies, Dr Hare has concluded that, in light of the alternative arrangements that will be available, it does not represent a material adverse effect; and (b) there are certain minor policy features of the Transferring Policies that are not economical to replicate on the ReAssure administration system. For example, following the implementation of the Schemes, non-standard premium frequencies or premiums that are collected after the 28th of the month will not be supported. These issues impact a limited number of the Transferring Policyholders. Fewer than 2% will see a change in the premium collection arrangements and affected policyholders will be able to select an alternative premium collection date. As this does not change the level of annual premiums or introduce significant restrictions, Dr Hare is satisfied that none of these changes represent a material adverse effect on policyholders The annuities being transferred under the Schemes will continue to be administered by Hannover Re, as the existing reinsurance and servicing arrangement is being transferred from HLUK to ReAssure.