Policyholder Explanatory Booklet

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1 Reliance Mutual Insurance Society Limited Policyholder Explanatory Booklet A summary of the proposal to transfer all of the insurance business of Reliance Mutual to Reliance Life RMPEB_1017

2 Contents 1. Summary 3 2. Why Are We Doing This? 7 3. Why LCCG? 8 4. Key Aspects of the Scheme 9 5. What does this mean for you as a Policyholder? What does this mean for you as a With-Profits Policyholder? What does this mean for you as a Member? Governance The Process from now and what you need to do 21 Appendix Appendix 1: Summary of the Independent Expert s Report 23 Appendix 2: Notice of Transfer 35 Appendix 3: Companies with Business now in the Society 37 Appendix 4: Glossary 38 2

3 1. Summary 1.1. What are we proposing? This booklet describes our proposal to sell Reliance Mutual Insurance Society Limited to Life Company Consolidation Group ( LCCG ), and transfer all of its insurance business (including your policies) to one of LCCG s subsidiaries LCCG New LifeCo Limited. Around the time that policies are transferred, we expect that LCCG New LifeCo Limited will be renamed Reliance Life Limited. In this booklet Reliance Mutual Insurance Society Limited is referred to as the Society, we, us, Reliance Mutual or RMIS, and LCCG New LifeCo is called Reliance Life or RL. You may find the glossary useful. It is Appendix 4, at the very end of this booklet, and explains certain terms that are in italics when used in this booklet. The transfer process is carried out under Part VII of the Financial Services and Markets Act 2000 ( FSMA ) by way of a legal document called a Scheme ( the Scheme ). In order for the business to transfer, the Society will effectively be demutualised, because the current members will all have to give up their membership rights when the policies transfer. If you have a policy with us, it will be included in the proposed sale and transfer. The Society s board of directors (the board ) is firmly of the view that the proposal is the option most likely to be in the best interests of the Society s policyholders and members, and expects the security of your policy benefits to be improved by it. None of the terms or conditions of your policy will be changed. Reliance Life has been set up as the insurer for your policies. It does not currently have any policies of its own but it expects to take on more in the future. LCCG already has similar businesses in Ireland and the Isle of Man. Reliance Life will be authorised as a life insurer in the UK and will be regulated by the Prudential Regulation Authority and the Financial Conduct Authority (the UK Insurance Regulators ) Why is this good news? There are 6 key aspects of the proposed sale and transfer that make the Society s board confident that it is good news: LCCG will immediately inject assets (capital) to provide all policyholders with greater security than is possible with our current structure as a mutual. In addition, LCCG has access to further capital in the event it is needed. A stronger and growing company should be able to maintain and enhance technology to ensure a quality customer service can be provided in the longer term. This would be difficult to achieve if we maintained the current structure and managed the run-off of policies with existing resources. Management and staff will be largely unchanged, so you will continue to be serviced by our dedicated team in Tunbridge Wells. Effective governance arrangements will be put in place in Reliance Life to protect the interests of all policyholders and these are described in more detail in Section 8. Policyholders with a with-profits policy in With-Profits Sub-Fund 1 ( WPSF1 ) will benefit from reduced exposure to expenses and other business risks. This should make it easier to distribute the assets of that sub-fund to these policyholders fairly and consistently over time. This is described in more detail in Section

4 All qualifying members will receive compensation in cash for the loss of membership rights that is the consequence of the proposal. To qualify you have to have been a member on 31 December 2016, the Qualifying Date. Please look at questions 13 and 14 on the question and answer sheet if you are not sure if you were a member. The payments are referred to in this booklet as Member Payments and are described in more detail in Section 4.3. If the sale and transfer does not go ahead and the Society remains as it is, these Member Payments will not be made. The board of the Society has therefore unanimously concluded that this sale and transfer is the option most likely to be in the best interests of its policyholders and members. The rest of this booklet: explains why the Society s board has reached this conclusion; describes Reliance Life and LCCG in more detail; explains the key elements of the sale and transfer and the steps involved; explains what it means for you as a policyholder or member; explains how your interests have been considered and protected, which has included detailed reviews by the Society s actuaries and an Independent Expert; and sets out the process for the sale and transfer What do you need to do? If the proposed sale and transfer goes ahead, any policies (or interest in such policies) you have with us will automatically transfer to Reliance Life. Even if you are happy with the proposals, we encourage you to read and carefully consider the contents of this booklet, and the accompanying letter and Questions and Answers sheet. As a policyholder, you have the right to make representations and attend the hearing at the High Court of England and Wales (the High Court ). More detail is provided in Section If, after having read this booklet, and the accompanying letter and Questions and Answers sheet, you still have any questions or concerns, please contact us. Our contact details are in Section 1.5. If you are a member who is eligible to vote, we encourage you to do so. More details are provided in Section The process and next steps The Independent Expert For a transfer of insurance business like this, an Independent Expert is appointed to review the details of the transfer, and to ensure that the interests of all policyholders are protected. Tim Roff, a partner of Grant Thornton UK LLP ( Grant Thornton ) was appointed as Independent Expert for this Transfer. He is an actuary not connected with either ourselves or LCCG or Reliance Life and his appointment was approved by the Prudential Regulation Authority in consultation with the Financial Conduct Authority. He has completed his report, and has concluded that: it is my opinion that the implementation of the proposed Scheme at the Effective Date will not have a material adverse effect on the security of benefits or the future benefit expectations of policyholders of RMIS. In reaching this opinion, I have considered the effect of the Scheme on the Transferring Policyholders. All the current policyholders of RMIS are expected to transfer to RL under the Scheme and RL has no existing policyholders. In particular, I have concluded: there will be no change in the policy terms and conditions of the Transferring Policyholders as a result of the Scheme; there will be no material adverse change in the benefit expectations of the Transferring Policyholders as a result of the Scheme; there will be no material deterioration in the security of the benefits of any Transferring Policyholders as a result of the Scheme; there is not expected to be any deterioration of the overall governance standards as a result of the transfer to RL; and 4

5 the Scheme will have no material adverse impact on the service standards experienced by the Transferring Policyholders. Further it is my opinion that the Scheme will have no material adverse effect on the current reinsurers of RMIS. In addition I have considered the payments to be allocated to all qualifying members as compensation for loss of membership rights including the amounts to all qualifying voting members for loss of voting rights and I consider that the principles that RMIS intends to follow in order to determine these payments are appropriate. Overall I am satisfied that the Scheme is equitable to all classes and generations of policyholders of RMIS and I see no reason why the Scheme should not go ahead. A summary of the Independent Expert s report is set out in Appendix Communication with policyholders The next step is to communicate the proposals to all policyholders of the Society and other interested parties, which is the purpose of this booklet, and accompanying letter and Questions and Answers sheet. This booklet sets out the terms of the proposed sale and transfer, which is described in more detail in Section 4. We recommend that you read this booklet carefully as it explains the impact of the proposals on your policy(ies) Member vote The Society s board decided that members should have their say on the proposed sale and transfer before we progress to the final stage of the legal process. A vote is also required to change the Articles in order for the sale and transfer to proceed. If you are a member of the Society eligible 1 to vote, you will have received additional material and information about the General Meeting of the members ( GM ), which we are holding so that members can vote on the proposal. You are encouraged to read this additional material and to use your vote to approve the resolutions which will allow this Transfer to proceed. If you are not eligible to vote then you do not need to take any action in connection with the GM High Court hearing The final stage of the legal process involves a hearing at the High Court to consider various aspects of the Scheme, including: the legal document which enables the Transfer to proceed (called the Scheme); the analysis of the likely impact of the Scheme carried out by the Independent Expert and the UK Insurance Regulators; and any concerns that have been raised by policyholders or other interested parties. All policyholders have the right to make representations and attend the hearing at the High Court. The High Court process is explained in more detail in Section 9.1 and To be eligible to vote you have to meet the requirements set out in the Society s Articles of Association on the date of the GM. More details on eligibility are given in question 13 and 14 in the Questions and Answers sheet and if you are unsure whether you are eligible please contact us. 5

6 Timetable for the Transfer Please see the following key times and dates: What is happening? When? How does it impact me? General Meeting (GM) 14 December 2017 If you are eligible to vote, you should either submit your vote before this date or attend the meeting. If you think you are eligible to vote but have not received the GM voting pack, please contact us. Our contact details are in Section 1.5. Hearing Date 6 March 2018 If you have any concerns you should raise them before this date, so that they can be considered by the High Court and the Independent Expert. Documents are usually submitted to the High Court one week before a hearing. You also have a right to attend this hearing. Please refer to the Notice of Transfer in Appendix 2 for more details. Effective Date 1 April 2018 This is the intended date for the transfer of your policy. Member Payments 1 October 2018 We do not know exactly when members will receive a cheque with their Member Payment, but payments will be made within six months of the Effective Date if you qualify. Claim period Up to 1 April 2023 If you believe you may qualify for a payment and are either over 100 years of age or think we may not have your up to date details, please get in touch before the end of this period so that we can make any payment due to you. Final claims 1 April 2023 If you have not claimed your Member Payment within 5 years of the Effective Date, for example if you have lost your cheque or failed to cash it, you will no longer have a right to receive it Contacting us If you have any concerns about how the proposed sale and transfer will impact you, or have questions which are not answered by this booklet or the information on our website, please contact us. Information can be found on our website at You can call us 2 from 9am to 5pm (UK time) Monday to Friday, unless it s a Bank Holiday in England. Telephone: From within the UK: Freephone , option 3 Telephone: From outside the UK: +44 (0) , option 3 You can us at transfer@reliancemutual.co.uk You can contact us via the website at; You can send us a letter at; Reliance Mutual Insurance Society Limited, Reliance House, 6 Vale Avenue, Tunbridge Wells, Kent, TN1 1RG. If you would like to receive documentation about this Transfer in large print, in Braille, or on CD, please call us on the numbers quoted above. 2 Calls may be recorded for security and training purposes. You will be charged for calls from outside the UK. 6

7 2. Why Are We Doing This? At the Society s Annual General Meeting in May 2015, and in our 2015 Report and Accounts, we explained that the Society s board initiated a strategic review process in The Society s financial strength had come under pressure as a result of: continued turbulent investment markets; the continuation of extremely low interest rates; the impending impact of the new regulations called Solvency II; and the cost of promoting There, our online protection proposition. As a consequence, the Society s board has been actively investigating whether policyholders and members would be best served by the Society remaining an independent mutual, or by transferring part or all of the Society into another insurer. The Society can t afford to attract new members with the capital that it has, and as a mutual of our size it is very difficult and prohibitively expensive to raise additional capital. This means that management of the Society s expenses has become crucial. We have significant fixed or overhead costs, which arise mainly from the required governance and oversight functions that are a key part of any regulated financial institution in the UK. As a mutual, these costs have to be borne by our members (through their policies) and the Society s board recognises that, without further action, these costs would have to be shared across reducing numbers of policies or absorbed by the Society s spare capital, which in turn could ultimately threaten the solvency of the Society. The Society s board investigated third party options and received several offers, all of which would improve the security for policyholders. These options aim to remove risks that are faced by the policyholders currently. 7

8 3. Why LCCG? 3.1. The selection process After the Society s board had determined that a full sale and transfer of the Society s business to another insurer was likely to be the best strategic option for our policyholders and members, we carried out a rigorous process to find a suitable partner. A set of criteria was developed, against which all proposals were measured. These included: the overall value ascribed to members and policyholders interests; the degree of certainty and security that our policyholders would obtain as a result of the proposal; the costs and risks involved in implementing the proposal, including the relevant experience of the potential partner; and confirming that the proposal would be expected to be a better option than remaining as a standalone mutual. The Society s board appointed professional advisers to ensure a thorough market review was performed. A number of organisations were contacted by our advisers, using their experience of the insurance market, to assess interest in the potential transfer of the Society. After due consideration of the proposals received, including taking advice from our professional advisers, the Chief Actuary, the With-Profits Actuary and the Chief Risk Officer, the Society s board unanimously concluded that the proposal received from LCCG was the option most likely to be in the best interests of our policyholders and members Who is LCCG? LCCG is a group founded in 2013 with the aim of consolidating life insurers in the UK and Europe. So far it has seven businesses. These are in the Isle of Man (operating through Utmost Wealth Solutions) and the Republic of Ireland (operating through Utmost Ireland). It has been looking for a UK business since it was set up and believes that RMIS is a perfect fit for its plans. LCCG believes that all stakeholders (including customers and employees) in smaller life insurance companies are better served as part of a specialist and growing company, such as itself. It is owned by its founders (Paul Thompson and Ian Maidens), and by Oaktree Capital Management. Oaktree Capital Management is a leading global investment firm that, together with its associates, manages US $99 billion of investments (as at June 2017). It is listed on the New York Stock Exchange and is regulated by the Securities Exchange Commission. LCCG set up Reliance Life as the insurer for your policies. Reliance Life will be a UK-regulated company authorised by the Prudential Regulation Authority and regulated by the UK Insurance Regulators. Reliance Life does not currently have any policies of its own but it expects to take on more in the future after the RMIS business is transferred to it. 8

9 4. Key Aspects of the Scheme 4.1. Introduction This section provides a summary of the Scheme to implement the Transfer. We ve put the full Scheme and the full Independent Expert s report on our website, where you can read, download and print them. If you prefer, you can ask us to send you copies. Our website address is The Transfer is to be carried out under Part VII of FSMA. The Transfer will not proceed unless the members who are eligible to vote approve the resolutions at the GM and then an order sanctioning the Scheme is granted by the High Court. If the High Court approves the Scheme, the business of the Society will transfer to Reliance Life. It is expected that the Transfer will become effective on 1 April 2018 (the Effective Date ). The Scheme documents in a precise manner how the Transfer will be effected and how the Society s business will be managed by Reliance Life in the future. If approved by the High Court, all of the liabilities of the Society, other than Excluded Policies (if there are any see Section 4.9), will be transferred to Reliance Life. Sufficient assets will be left in the Society after the date of the Transfer to pay the Member Payments and cover any other requirements of the Society. The rest of the Society s assets will transfer to Reliance Life. Assets will also be transferred into Reliance Life by its shareholders, both to replace the amounts left in the Society and to provide additional security for policyholders The Society In order to transfer its business to Reliance Life, the Society has to effectively be demutualised. It will technically continue be a mutual after the Transfer, but its only member will be Reliance Life. Before the High Court hearing, members who are eligible to vote will be asked to vote on two resolutions: firstly, to approve the Transfer; and secondly, to adopt a new set of Articles of Association ( Articles ) that will apply if the Transfer goes ahead and allow Reliance Life to become the only member. This is necessary to give effect to the Scheme. The Society will remain in existence for a period of time after the Transfer to allow for the management of Excluded Policies (if there are any), the making of the Member Payments (see Section 4.3) and the de-authorisation 3 of the Society as a life insurer. Reliance Life will be the only member of the Society for this period Member Payments The current members have to give up their membership rights in the Society for the Transfer to go ahead, and we plan to compensate qualifying members with a cash payment. Members qualify for a Member Payment if they were a member 4 on the Qualifying Date. There are two components of the Member Payments: Qualifying members who were eligible to vote on the Qualifying Date will receive a fixed amount for giving up their voting rights. These members are referred to as qualifying voting members. An additional amount will be paid to all qualifying members for giving up other membership rights they held at the Qualifying Date. 3 The Society is authorised by the Prudential Regulation Authority, and regulated by the UK Insurance Regulators. Once it has no policies it will not need to be authorised (or regulated) by the UK Insurance Regulators. 4 The definition of member for this purpose is set out in the Scheme and is linked to the Society s Articles. More details on membership are provided in Section 7. 9

10 We do not have contact details for all our members and so it is expected that some of the Member Payments will not be claimed. It is expected that less than 6% of the total amount received from LCCG will be unclaimed by our members and most of the money will be returned to Reliance Life shareholders 5 after five years. LCCG allowed for this when deciding how much to offer for the Society, and the Society s board considered it when assessing the proposal. The final value of the amount being received from the sale of the Society, and therefore the amount available for the Member Payments, can only be calculated after the Transfer becomes effective. This is because it depends on adjustments based on what happens in the period before the Transfer, for example the amount that the Society spends. More detail on the Member payments can be seen in paragraph 4.4 of the Independent Expert s summary report in Appendix 1 and in his full report which is available on our website Voting member amounts Some of the amount received will be used to compensate members for giving up their right to vote. This has been set as 100 to be paid to each qualifying voting member 6. RMIS has given the level of payment careful consideration. A higher payment could be unfair to policyholders in WPSF1 (and therefore also all members) as it would reduce the estimated value given to their share of the business, which is already being included in policy benefits. A lower payment is not considered a fair reflection of the value of voting rights and the reasonable expectations that members may have All member amounts The rest of the money received from LCCG will be split between policyholders in WPSF1 (who have an interest in part of the business being sold), and all qualifying members (including qualifying voting members). The amount being paid to qualifying members is available due to the terms of a scheme of arrangement in 2012 the ( 2012 Scheme ) when the rights of the WPSF1 policyholders were fixed as a proportion of the business written before Since 2012 anything else has been used for the benefit of all members and it can now be distributed to all qualifying members because of the sale and transfer. When assessing a fair amount to pay to all qualifying members, which depends on the amount paid to qualifying voting members, RMIS has compared the share allocated to WPSF1 against the amounts that have been included in policy benefits since This is because, the 2012 Scheme, created a direct link between the WPSF1 share and the share that can be distributed to qualifying members. If the voting amount was bigger, the WPSF1 share and share for all qualifying members would both reduce. RMIS has concluded that the WPSF1 policyholders receive a fair amount under the Transfer and therefore that the amount allocated to qualifying members is also fair. When we calculate the split between WPSF1 and qualifying members, an allowance will be made for the fact that part of share allocated to qualifying members is expected to be returned to Reliance Life shareholders (as explained above). The part allocated to WPSF1 will be distributed over time through policy benefits as it is currently and will not be paid as cash. See more detail on WPSF1 policyholders in Section 6.2. The share for qualifying members will be divided between them based on the size and nature of policies (at the Qualifying Date) Minimum and maximum payments No qualifying member will receive less than 1 in total. There will also be a maximum payment amount, but this will only apply to a very small number of members, generally where the member took out policies covering many individuals. 5 Where an unclaimed amount relates to a policy in a with-profits sub-fund, the amount will be returned to that with-profits sub fund. When LCCG made their offer to buy the business, they allowed for the fact part of their payment will to be returned to their shareholders as a result of it not being possible to trace some members. The total amount that LCCG pays will not be known until after the Effective Date of the Transfer, but it is expected to be roughly 50m. It is expected that less than 3m of this will be returned to their shareholders after five years. 6 Qualifying voting members will receive this amount even if they do not use their vote at the GM. Joint members only have a single vote and so will only receive a single payment of 100 shared between them. 10

11 Claiming your member payment Cheques will be sent to qualifying members within six months of the Effective Date of the Transfer and most members do not have to do anything to claim a Member Payment. However please contact us using the details in Section 1.5 if: we sent this booklet and letter to an old address, so we can update our records. This will help to make sure the cheque is sent to the correct address. you were over 100 years of age at the Qualifying Date and might qualify for a Member Payment, so we can make any payment due to you. you believe you qualify for a member payment and have not received a cheque by 1 October 2018, so that we can make sure that you receive any money due to you. If the members eligible to vote at the GM do not approve the resolutions, no Member Payments will be made because the sale and transfer will not go ahead Impact on fund structure The fund structure of Reliance Life will be established to mirror the current fund structure in RMIS, with the exception that WPSF1 will no longer have an interest in the business being transferred from the Ordinary Sub-Fund ( OSF ) to the Non-Profit Fund, as shown below. For the purpose of calculating the capital required by the Solvency II regulations, there is no division between the shareholder fund and the Non-Profit Fund. OSF WPSF1 interest WPSF1 WPSF2 WPSF4 WPSF6 RMIS Pre Transfer Shareholder Fund Non-Profit Fund New WPSF1 New WPSF2 New WPSF4 New WPSF6 Reliance Life Post Transfer 11

12 4.5. Explanation of sub-funds Pre transfer sub-funds OSF WPSF1 WPSF2 WPSF4 WPSF6 The Ordinary Sub-Fund contains the business of the Society that is not in one of the with-profits sub-funds described below. This business is non-profit unit-linked and non-linked business written by or transferred to the Society and includes business that converted to a non-profit basis following the closure of two with-profits sub-funds that existed in the Society previously. It also contains some unit-linked policies with an investment in WPSF6 on a unitised with-profits basis; With-Profits Sub-Fund 1 contains all the business originally written by RMIS which was with-profits when the sub-fund was created in 2012; With-Profits Sub-Fund 2 contains the former Criterion Life Assurance with-profits fund, which was transferred to the Society in 2004; With-Profits Sub-Fund 4 contains the former Family Assurance Time RA fund, excluding its unit-linked business. This business was transferred to the Society in 2004; With-Profits Sub-Fund 6 contains the with-profits business originally written by Hearts of Oak Friendly Society Limited, which was transferred to the Society in Appendix 3 lists all the companies whose business is now part of the Society as a result of previous transfers Pre transfer sub-fund interaction The 2012 Scheme created a relationship between OSF and WPSF1. WPSF1 shares in the value (and risks) of the business that was in OSF on 1 August One of the significant risks that WPSF1 faces under this arrangement is the level of the Society s expenses. As noted in Section 2, the Society is unable to afford to attract new members as a mutual and it faces the risk that the expenses allocated in respect of each policy rise faster than assumed. This would reduce the value of WPSF1 s share of the business in OSF. The 2012 Scheme also put in place support arrangements between the sub-funds for the situation where any sub-fund was unable to cover its own requirements under the regulations. All sub-funds could be called on to support other sub-funds Post transfer sub-funds Shareholder fund: this will be used to track the value of the assets injected into Reliance Life by LCCG; Non Profit Fund: New WPSF1: New WPSF2: New WPSF4: New WPSF6: this will contain all the business in OSF immediately prior to the Effective Date; this will contain all the business in WPSF1 immediately prior to the Effective Date other than its interest in the business in OSF. It will also include assets received in exchange for its interest in the business in OSF prior to the Effective Date; this will contain all the business in WPSF2 immediately prior to the Effective Date; this will contain all the business in WPSF4 immediately prior to the Effective Date; this will contain all the business in WPSF6 immediately prior to the Effective Date. 12

13 Post transfer sub-fund interaction The terms of the 2012 Scheme, which split OSF and WPSF1, will cease to apply after the Transfer. Part of the value received from the sale of the business to LCCG will be transferred to WPSF1 on the Effective Date in full and final settlement of its interest in the business in OSF. From then on it will exist as a fully ring-fenced sub-fund. The expenses to be charged to WPSF1 in the future are set out in the Scheme. There will be a fixed method for calculating the regular expenses charged to the sub-fund and restrictions on the other direct costs which can be charged to it. WPSF1 will therefore not be exposed to the future profits and losses of the business formerly in OSF, or the associated future expense risk. Support arrangements will be simplified. WPSFs 1, 2, 4 and 6 will not be required to provide any support to each other or to the Non-Profit Fund, and equally will not receive support from one of these withprofits sub funds. In the event any of these sub-funds is unable to cover its own requirements under the regulations, the shareholder fund or the Non-Profit Fund will provide support in return for a charge which will be at a level consistent with the existing arrangements Provisions from previous schemes The Society s business is managed in line with provisions that were put in place by previous schemes, which were originally used either to transfer business into the Society or to create the division between OSF and WPSF1. Key provisions from the previous schemes are replicated in the Scheme, with minor updates primarily for consistency or completeness, and to ensure the business can be managed effectively, including: Terms relating to the future closure of with-profits sub-funds when the assets in the sub-fund fall below a certain size (including the conversion of with-profits policies into non-profits policies); The basis on which expenses are charged to WPSF 2, 4 and 6; and Restrictions on direct costs which can be shared with WPSF1. However, some provisions from previous schemes will no longer apply following the approval of this Scheme. These primarily relate to WPSF1, which will get a share of the value received from the sale of the Society in exchange for its current interest in the business in OSF that is being sold. This will provide more certainty for the policyholders in WPSF1, who are currently exposed to significant risks from this interest in business outside their sub-fund. This helps to ensure that WPSF1 s share of the value of this business can be distributed fairly to policyholders without having a negative impact on the security of the Society. WPSF1 will also benefit from increased certainty as there will be a fixed basis for the charging of regular expenses, as a result of the Scheme, similar to those set out for the other with-profits sub-funds in previous schemes. The 2012 Scheme set out provisions which mean that an RMIS with-profits sub-fund can currently provide support to other parts of the business, if required. If the Transfer goes ahead, in the future no with-profits sub-funds would provide support in this way. Any support required would be provided by the shareholder fund or the Non-Profit Fund of Reliance Life. The Independent Expert considers these in paragraph 5.5 of his summary report in Appendix 1 and in more detail in his full report which is available on our website Costs of implementing the Scheme With the exception of certain specified costs, the Society and LCCG will each cover their own costs incurred in connection with the Scheme. Some of the costs associated with the Scheme, including the cost of the Independent Expert s Report (and any supplementary report) and the costs and expenses of the jointly appointed counsel in respect of the Scheme, will be shared equally by the Society and LCCG. 13

14 4.8. Transferring policies Subject to approval from the High Court, all policies of the Society will be transferred to Reliance Life. Reliance Life will become responsible for all aspects of policy administration and claims payment (including payment of historic claims) after the Effective Date. Consequently, policyholders of the Society will become policyholders of Reliance Life. The Transfer will not affect the terms and conditions of your policy and you will be entitled to the same policy rights with Reliance Life as you currently have with the Society. Similarly, contracts the Society has with third parties (including those used to reduce risks within the business or to maintain the policies or the investments) will transfer to Reliance Life Excluded policies The Scheme is intended to transfer all policies of the Society to Reliance Life. However, it also contains provisions for the Scheme to proceed if for any reason the High Court is unable to transfer a particular policy. This will occur if, for example, the state of commitment 7 of a policyholder was not the UK but elsewhere in the European Economic Area ( EEA ) and the consent of the regulator in that EEA state has not yet been obtained. That policy would be an Excluded Policy for the purposes of the Scheme, and would not transfer at the Effective Date. It would remain a liability of the Society. Reliance Life will be responsible for the risks of Excluded Policies, so these policies would still benefit from the advantages of the Scheme. It will also have formal responsibility for the administration of any Excluded Policies. If all consents or other requirements for the transfer of an Excluded Policy are subsequently obtained, the Excluded Policy will then be transferred to Reliance Life The staff pension plan (Reliance Pension Scheme) The financial responsibility for meeting the Society s obligations to the members of the Reliance Pension Scheme ( RPS ) currently rests with the Society. After the Transfer, it will rest with Reliance Life. Reliance Life will become the principal employer for the purposes of the Pensions Acts 1995 and 2004 and no deficit payments will be charged to any of the with-profits sub-funds. The trustee company for RPS has taken independent advice on the proposals and has accepted the proposed changes to RPS as a result of the Transfer The Society s employees As a result of the Scheme, the employees of RMIS will be employed within LCCG after the Transfer becomes effective. They will continue to manage the business after the Effective Date in line with service standards currently in place Conditions The Scheme will not become effective unless: members eligible to vote at the GM vote in favour of the resolutions with the required majorities; it is approved by the High Court; and certain tax clearances have been obtained or waived. 7 The state of commitment is, in general, the country where the policyholder was habitually resident when the policy was initially taken out. 14

15 5. What does this mean for you as a Policyholder? 5.1. Overall impact on you You won t notice any difference to your policy, or the way it is looked after, as a result of the proposed sale and transfer, other than different branding on correspondence about your policy, and the name RMIS being replaced by Reliance Life. That is because the proposed sale and transfer will NOT: reduce any guaranteed benefits payable under your policy; reduce any annual bonuses already added to your policy; affect your policy terms and conditions; affect the way your policy is administered; increase the policy charges made for administering your policy; change the way the investments backing your policy are managed; change your policy number; change the UK tax status of your policy; or change the address and telephone number you use if you want to ask anything about your policy. The Society s board considers that the proposed sale and transfer provides enhanced security for your benefits, maximises certainty around the future administration of your policy, and reduces the risks associated with future costs. The Society s board took advice from our Chief Actuary, With-Profits Actuary, and Chief Risk Officer in reaching its conclusions. Their advice supported the decision to proceed with the proposed sale and transfer. The Society s Chief Actuary and With-Profits Actuary have both considered the Transfer in detail and reported on it to the board. Although reports by these actuaries are often published when a firm transfers business, we have not created public versions as the key points are covered in the Independent Expert s report. However, if you have specific technical questions or concerns, you will be able to speak to one of these actuaries either on the phone or at the GM. Our contact details are in Section 1.5. The Independent Expert has provided a report which confirms that he sees no reason why the sale and transfer should not go ahead. A summary of his report can be found in Appendix 1 and his full report can be found at Security of your benefits The security attaching to the benefits of any policy is affected both by the current financial strength of the insurer and its future prospects. Reliance Life will have a stronger balance sheet than the Society and our policyholders will therefore benefit from this increased financial security after the Transfer. It is also likely that Reliance Life will complete further acquisitions of insurance business, reducing the risks associated with a declining number of policies, which the Society would face if the Scheme is not approved. The Independent Expert has considered the issue of security of policy benefits very carefully and has concluded that: it is my opinion that the implementation of the proposed Scheme at the Effective Date will not have a material adverse effect on the security of benefits or the future benefit expectations of policyholders of RMIS. In reaching this opinion, I have considered the effect of the Scheme on the Transferring Policyholders. All the current policyholders of RMIS are expected to transfer to RL under the Scheme and RL has no existing policyholders. In particular, I have concluded: there will be no change in the policy terms and conditions of the Transferring Policyholders as a result of the Scheme; there will be no material adverse change in the benefit expectations of the Transferring Policyholders as a result of the Scheme; 15

16 there will be no material deterioration in the security of the benefits of any Transferring Policyholders as a result of the Scheme; there is not expected to be any deterioration of the overall governance standards as a result of the transfer to RL; and the Scheme will have no material adverse impact on the service standards experienced by the Transferring Policyholders. In addition I have considered the payments to be allocated to all qualifying members as compensation for loss of membership rights including the amounts to qualifying voting members for loss of voting rights and I consider that the principles that RMIS intends to follow in order to determine these payments are appropriate. Overall I am satisfied that the Scheme is equitable to all classes and generations of policyholders of RMIS and I see no reason why the Scheme should not go ahead. A summary of the report of the Independent Expert is set out in Appendix Charges on your policy The Scheme does not make any changes to the charges on any type of policy. However, the future benefits for policies in WPSF1 will be more certain as a result of the fixed basis for charges to that sub-fund. The basis for charges to WPSF1 has been set to be consistent with the current charges to that sub-fund. Where your policy has terms that are subject to regular reviews, such as fund charges or premiums, the Scheme places a commitment on Reliance Life to follow the same approach to these future reviews as was used by RMIS Policy administration Reliance Life will take on full responsibility for the administration of your policy immediately after the Transfer, and all future communications will be from Reliance Life rather than from the Society, albeit from the same staff and address as before. Reliance Life will also take over responsibility for all personal information relating to your policy. You will receive a welcome letter from Reliance Life on completion of the Transfer. There will be no change in the way your premiums are collected or in the way in which policy payments are made. Instructions for the payment of premiums will automatically be altered on your behalf to make payments to Reliance Life instead of the Society. The Direct Debit Guarantee will continue to apply. You therefore do not need to take any action relating to the payment of premiums or receipt of payments under any of your policies Investment strategy and fund management The Society s board understands that Reliance Life intends, initially, to retain the same investment strategy as is currently in place for the assets being transferred from the Society. The current range of funds available to our unit-linked policyholders in RMIS will continue to be available in Reliance Life after the Transfer. Future changes in the range of funds made available for the unit-linked policies may be made if it is efficient to do so, but any such change will be subject to review under Reliance Life s governance arrangements. If a fund used by unit-linked policies is changed or closed, RMIS has arranged for the policyholder to be entitled to a free switch to an alternative fund offered by Reliance Life, within a year of the change Options and rights under your policy There will be no change to the options and rights you currently enjoy under your policy. Where these were changed by a previous scheme, those changes will continue to apply. 16

17 6. What does this mean for you as a With-Profits Policyholder? 6.1. Overview If you have a with-profits policy, there are more ways that the management of the business can impact your benefits. This section sets out more information on the changes that may impact you. The assets of With Profits Sub-Funds 2, 4 and 6 are generally only used to pay liabilities allocated to the sub-fund or extra benefits to the with-profits policyholders in the sub-fund. This is not the case for the business in WPSF1 currently, but will be if the Transfer goes ahead. The changes to WPSF1 are described in more detail in Section 6.2. The current support arrangements mean that all with-profits sub-funds have some exposure to the risks in other parts of the business. This will be removed after the Transfer, so that, if support is needed, it will be provided by Reliance Life s Non-Profit Fund Changes to WPSF1 Currently, WPSF1 policyholders have a financial interest in a large part of the Society s non-profit business and are therefore exposed to a share of all the risks in that part of the business. The estimated value of the non-profit business can change significantly at the regular valuations, and bonus rates for with-profits policyholders in WPSF1 have to change to reflect the change in estimated value. Additionally, the value of the business cannot be paid to policyholders exiting WPSF1 if the corresponding assets are still needed to support the business. One of the risks that is shared is the risk of higher expenses in respect of each policy, as a result of fixed expenses being shared across a business which is shrinking. If the expenses in respect of each policy increase, the value of the business to WPSF1 reduces. Other risks that can change the value of the business include changes in investment market conditions or changes in the number of policyholders taking their guaranteed annuity options. There has been some crystallisation of expense risk since the closure of the Society s new business proposition, which has impacted bonus rates in WPSF1. Under the terms of the Transfer, WPSF1 will receive a one-off payment for its interest in the business. This is paid from the amount received from the sale of the Society as explained in Section 4.3. The one-off payment is not expected to increase the benefits paid to policyholders in WPSF1 as the value of the business is already taken into account when we calculate bonuses. However, it does mean that there is more certainty about the bonuses that can be declared. This is because the value of the assets will be known and they will not be needed to support the other sub-funds. Expenses will also be charged to WPSF1 on a fixed basis. Detailed analysis of the impact on your policies of these changes has been carried out by the Society s With-Profits Actuary and Chief Actuary, as well as the Independent Expert. A summary of the Independent Expert s report is included as Appendix 1 of this booklet Principles and Practices of Financial Management ( PPFM ) The PPFM sets out details of how the with-profits business is managed. The new PPFM referred to in Section 8.3 is based on the current Reliance Mutual PPFM and, other than the changes to support arrangements and the management of WPSF1, there is no intention to change the way that this business is managed. As a result of the changes to the management of WPSF1 explained in Section 6.2, there will be fewer differences between the four with-profits sub-funds and so the new PPFM has been simplified to show that some practices will apply to all of the sub-funds. The new PPFM has also been updated to reflect the LCCG group company structure after the proposed sale and transfer. Some new principles and practices have been added, which are intended to ensure this business continues to be managed as it is now. An example of this is that the governance previously set out in the introduction has been moved to be part of the practices. 17

18 The key differences between the principles in the new PPFM compared to those in the current PPFM are summarised below. Where changes have been made that don t impact the way the business is managed, such as references being updated to reflect the structure of Reliance Life or improving the clarity of the new PPFM, these have not been included in the summary. Some small updates have also been made which reflect a minor change to the way the liabilities in the with-profits sub-funds are valued under the new Solvency II regulations. This change will apply from 31 December The changes clarify that the Non-Profit Fund covers some requirements relating to operational risks which are allocated to the with-profits sub-funds under the regulations. The PPFM has been updated to prevent the with-profits sub-funds from being charged for capital support relating to these amounts. RMIS expects to make similar changes if the business does not transfer to Reliance Life Removal of risks The Transfer will remove some of the risks faced by the business and reduce others. References to these risks in the principles in the PPFM have been removed (as appropriate) to reflect this. The key risks removed are: risks faced by WPSF1 as a result of its current interest in the business in OSF; risks faced by all with-profits sub-funds associated with potentially having to support other parts of the business including the Society s defined benefit pension scheme. The expense risk faced by WPSF1 in respect of its own policies has also been removed and the fixed charges for this fund are set out in the new PPFM Overarching principles The Scheme sets out additional governance that has to be followed if the overarching principles in the PPFM are changed. In order to facilitate this, overarching principles from the current PPFM have been moved into a separate section in the new PPFM. They have also been updated to include a principle relating to the fixed expense charging basis which is set out in the Scheme Interaction between shareholders and policyholders As a mutual, the Society has no shareholders. Following the Transfer, it is important to ensure there is appropriate governance to protect policyholders from the potential conflicts of interest that may arise in a company with shareholders, such as Reliance Life. This is reflected in the principles in the new PPFM, which includes a new section that sets out principles and practices for managing these potential conflicts of interest Cessation of a with-profits sub-fund The current PPFM includes provisions for the closure of a with-profits sub-fund that are set out in previous schemes. These have been moved to a separate section, where they are set out as principles and practices. The practices reflect the approach that was applied when the Society previously closed two with-profits sub-funds in

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