EXPLANATORY CIRCULAR RELATING TO PROPOSED TRANSFERS OF BUSINESS by KX REINSURANCE COMPANY LIMITED and OX REINSURANCE COMPANY LIMITED to CATALINA LONDON LIMITED UNDER PART VII OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 Legal.46871160.13/GQUI/36989.00001 1 02.08.17
INTRODUCTION OX Reinsurance Company Limited ( OX Re ) and KX Reinsurance Company Limited ( KX Re ) (together the Transferors ) are each proposing to transfer all of their respective insurance and reinsurance business (the Transferring Business ) to Catalina London Limited (the Transferee ) using a mechanism called an insurance business transfer scheme. This a statutory mechanism provided for under Part VII of the Financial Services and Markets Act 2000. KX Re was formerly known as The Maltese Cross Insurance Company Limited, Lombard Insurance Company (U.K.) Limited, Lombard Insurance (U.K.) P.L.C, Lombard Elizabethan Insurance plc, Lombard Continental Insurance plc, Lombard Continental Insurance Limited and Continental Management Services Limited. OX Re was formerly known as Storebrand Insurance Company (U.K.) Limited, Uni Storebrand Insurance Company (UK) Limited and Oslo Reinsurance Company (UK) Limited. The Transferors and the Transferee are all UK insurance companies, authorised by the Prudential Regulation Authority ( PRA ) and regulated by both the PRA and the Financial Conduct Authority ( FCA ). This document provides you with information about the application that has been made to the High Court of Justice of England and Wales (the Court ) to approve the transfer of all of the Transferors respective insurance business (described under Business to be Transferred below) to the Transferee, and about the terms of the insurance business transfer schemes which will govern the transfers. As there are two Transferors, there are technically two insurance business transfer schemes, but since they are in substantially the same terms and relate to the same Transferee, the text has been set out once in a consolidated document (the Scheme ). At Appendix 1 of this document is a summary of the terms of the Scheme and at Appendix 2 is a summary of a report prepared by an independent expert, Alex Marcuson (the Independent Expert ) who has been appointed to report on the effect of the proposed transfers of business on policyholders. His appointment and the form of his report have been approved by the PRA (in consultation with the FCA). Reason for the transfers The Transferors and the Transferee are all part of the Catalina group of companies (the Group ). OX Re is a wholly owned subsidiary of KX Re and KX Re is a wholly owned subsidiary of Catalina Holdings (UK) Limited the ultimate UK holding company. The objective of the proposed transfers of business pursuant to the Scheme (the Transfers ) is to rationalise the Group s business by consolidating KX Re, OX Re and the Transferee to form a single risk carrier. This will facilitate increased operational and capital efficiency through reduced running costs and management time (including reducing the cost of compliance and regulatory reporting); and by enabling surplus assets held across the three companies to be released to other Group companies or used to support the future activities of the Transferee. Business to be transferred In each case, The Transferring Business comprises all the insurance business underwritten or assumed, including by way of novation or portfolio transfer, by the relevant Transferors. Legal.46871160.13/GQUI/36989.00001 2 02.08.17
Effect of the Transfer A summary of the Scheme, the legal document which sets out the terms on which the transfers of business from the Transferors to the Transferee will take effect, is provided at Appendix 1 to this Circular. A full version of the Scheme may be obtained, free of charge, by contacting Catalina London Limited at 18 Mansell Street, London E1 8AA Ref: Ian Grottick Email: IanGrottick@CatalinaRe.com Telephone: 44 (0)20 7265 5026. If the proposals are approved then there will be no change to the terms and conditions of any transferring policy. In broad terms, the Transferors respective rights and obligations under policies comprised in the Transferring Business will be transferred, without alteration, to the Transferee. Any rights you have under such policies will remain unchanged, but following the Transfers will be exercisable against or owed to the Transferee alone. Valid claims will continue to be paid although the party liable to make payment will be the Transferee, rather than the relevant Transferor. The Transfers are without prejudice to any full or partial reservation of rights previously notified by or on behalf of the Transferors and neither of the Transferors waives any such reservation of rights. The Transfers are intended to be subject to and to preserve all such reservations of rights, which are adopted by and will inure for the benefit of the Transferee. There will be no change in the approach to claims handling. Following implementation of the Scheme, the Transferors will have no further insurance liabilities and can be de-authorised and dissolved. Impact of the proposals The Scheme has been reviewed by Alex Marcuson of Marcuson Consulting Ltd (the Independent Expert ) and by the PRA and FCA regulators of insurance business in the United Kingdom. The appointment of the Independent Expert and the form of his report have been approved by the PRA, having consulted the FCA. The Independent Expert has considered the security of all policyholders and his report is summarised at Appendix 2 to this Circular. A full version of the Independent Expert report may be obtained, free of charge, by contacting Catalina London Limited at 18 Mansell Street, London E1 8AA Ref: Ian Grottick Email: IanGrottick@CatalinaRe.com Telephone: 44 (0)20 7265 5026 or may be downloaded from the website http://www.catalinalondon.co.uk/partvii. The Independent Expert has an overriding duty of responsibility to the Court, and not to the parties involved in the proposed transfer. His report must be impartial, based on a thorough scrutiny of the proposals and the businesses of the Transferors and the Transferee. The Transferors and the Transferee have each provided the Independent Expert with access to key staff and any information he has requested, both private and public. The Independent Expert s report concludes in summary that: 1. In financial terms, the existing policyholders of the Transferee and the policyholders of the Transferors whose policies are transferring under the Transfers (together the Affected Policyholders ) are unlikely to be materially adversely affected by the Transfers; 2. The Transfers will have no material non-financial impact on the Affected Policyholders, given that there will be no change to the policy and claims Legal.46871160.13/GQUI/36989.00001 3 02.08.17
administration arrangements in place and the Independent Expert has not identified any other material changes to regulatory and other aspects arising from the Transfers; 3. While policyholders of OX Re are currently with an insurer that is strongly capitalised and the policyholders of KX Re are currently with an insurer that is adequately capitalised, and in each case those policyholders will be moving to an insurer that is adequately capitalised (but with a lower capital coverage ratio than KX Re), the Independent Expert does not consider that the financial security of either OX Re s or KX Re s policyholders will fall to a level below that which they might reasonably expect to have; 4. KX Re s policyholders will benefit from an increased resilience to adverse scenarios arising from KX Re s existing exposure to US asbestos related claims as a result of moving to a large combined company; and 5. There are no material implications of the Transfers for any reinsurers of the Transferors. A full copy of the Independent Expert s report will be provided on request. See page 5 below for the relevant contact details. The Independent Expert will submit a supplemental report shortly before the Court hearing explaining whether there have been any relevant developments since his initial report and if so whether they affect his conclusions. As with all insurance business transfer schemes, Court approval is required before the Transfers before can proceed. The Court will consider the Independent Expert's report, reports prepared by the FCA and PRA, and any representations made by affected parties. Where and when will the Court hearing take place? The Court hearing is scheduled to take place on 17 November 2017 at the High Court, The Rolls Building, 7 Rolls Buildings, Fetter Lane, London EC4A 1NL. Formal notice of the hearing is at Appendix 3 to this booklet. Who can attend? Policyholders, and any other party who believes they may be adversely affected by the Scheme, are entitled to raise objections to the Scheme by stating how they may be adversely affected. The Court has a wide discretion as to whether to approve a transfer, and will consider whether the transfer will have a material adverse effect on any party before making its decision. When will the Transfers take effect? If approved by the Court, it is expected that that the Transfers will become effective at 23:59 on 30 November 2017 (the Effective Date ). Next steps We hope this document provides you with the information to allow you to understand what is proposed, and answer any questions that you may have. If you do not think you are adversely affected and have no objections to the proposal you do not have to do anything. However, if you consider you may be adversely affected by the proposal or object to the proposal or if you need any further information, then please let us know. You can call us between 9am and 5pm Monday to Friday, email us or write to us at the contact details provided below. Legal.46871160.13/GQUI/36989.00001 4 02.08.17
If you have an objection to the proposals or if you believe you will be adversely affected as a result of the Scheme, you can make representations in writing. These will be drawn to the attention of the PRA and the FCA prior to the hearing (along with any oral objections), and will be submitted to the Court at the hearing. You are requested but not required to send any written representations to Berwin Leighton Paisner LLP at the address and contact details given in the preceding paragraph before the hearing, and ideally by 10 November 2017. You can also attend (in person or by a legal representative with advocacy rights), and make representations at the Court hearing. If you intend to do so, you are requested but not required to notify Berwin Leighton Paisner LLP, the solicitors acting for the companies, of your intention and the reasons why you consider you will be adversely affected by the Scheme. You should contact them by writing to Berwin Leighton Paisner LLP (Reference Geraldine Quirk), Adelaide House, London Bridge, London, EC4R 9HA as soon as possible and ideally before 10 November 2017. This will allow us to keep you informed of any changes to the hearing date and where possible address your concerns. We will keep a careful record of all the objections and representations received and will include these in the evidence to be considered by the Court at the hearing. Contact details You can also call us, email us or write to us at: Catalina London Ltd 18 Mansell Street London E1 8AA Ref: Ian Grottick Email: IanGrottick@Catalinare.com Telephone: 44(0)20 7265 5026 You may also contact the PRA and FCA at the following addresses: Prudential Regulation Authority Bank of England 20 Moorgate London EC2R 6DA Ref: Transfers and Crystallized Risks Team Financial Conduct Authority 25 The North Colonnade Canary Wharf London E14 5HS Ref: Transfers of Business Team / Authorisation Legal.46871160.13/GQUI/36989.00001 5 02.08.17
Appendix 1: Summary of the Scheme This summary sets out the principal provisions of the Scheme. Unless otherwise defined in this summary, capitalised terms used in this summary have the meanings given to them in this Circular. It is anticipated that the Scheme will take effect on 30 November 2017 (the Effective Date ). The Transfers are interconditional so that if one transfer does not become effective, neither of them will take effect. On the Effective Date: 1. The Transferee will assume the Transferors respective rights and obligations arising out of the Transferring Business. 2. The liabilities of the Transferors so far as they relate to the Transferring Business will be transferred to and become liabilities of the Transferee and will cease to be liabilities of the Transferors. This will include liabilities arising under each policy included in the Transferring Business ( Transferring Policy ), whether such Transferring Policy is governed by English law or the laws of another jurisdiction. 3. The Transferors respective interests in outwards reinsurance contracts which protect the Transferring Business will be transferred to the Transferee. 4. In addition to transferring interests in outwards reinsurance contracts: (a) (b) OX Re will transfer all other assets and liabilities of OX Re, aside from cash and investments; and KX Re will transfer all other assets, investments and liabilities of KX Re, with the exception of: (i) (ii) its shares in OX Re; and any assets which are not required to provide the Transferee with assets of a type acceptable under regulatory rules covering the sum of i) 128% of its regulatory capital requirement ( SCR ) and ii) a margin of US$4.3m. For these purposes, the Transferee s SCR will be calculated as at 31 December 2016 as if the Transfers had taken effect at that date. The calculation of the SCR referred to above will be based on audited financial information at 31 December 2016, which is the most recent currently available. It is expected that the SCR will reduce in the period between the 2016 year end and the date the Transfers take effect as claims continue to be paid. However, the Independent Expert will review the 2016 year end figures in his supplemental report prepared for the final sanction hearing in November 2017 and will consider whether, having taken account of any developments in the intervening period, any adjustment should be made to the calculation of the Transferee s SCR in order to ensure that policyholder security is not materially adversely affected by the Transfers. It is intended that each of the Transferors will be de-authorised following the Transfers. De-authorisation may not take effect on the date on which the Scheme becomes effective, and in that case the Transferors will need to continue to hold a minimum level of regulatory capital. The assets which are not intended to be transferred to the Transferee under the Scheme are expected to be more than adequate to satisfy the minimum regulatory capital requirements applicable to the Transferors. However, the Scheme provides for the very Legal.46871160.13/GQUI/36989.00001 6 02.08.17
unlikely eventuality that this is not the case, by allowing for the value of the assets to be transferred to the Transferee to be reduced to the extent necessary to enable the relevant Transferor to comply with its regulatory minimum capital requirement, with the remaining balance to be transferred as soon as practicable following de-authorisation of the Transferor. There will be no change in the terms and conditions of the insurance policies that form part of the Transferring Business. Following the Effective Date: 1. The Transferors must account to the Transferee for all sums or benefits received after the Effective Date in respect of the Transferring Business and/or any outwards contracts of reinsurance attributable to it; 2. All premiums attributable to the Transferring Business will from the Effective Date be payable to the Transferee; and 3. Any judicial, quasi-judicial, administrative proceedings or any complaint or claim to any ombudsman or any other proceedings for the resolution of a dispute or claim (whether pending, current or future) ( Proceedings ) by, against or in relation to either of the Transferors and concerning the Transferring Business will be commenced and/or continued by, against or in relation to the Transferee. 4. Any order or judgment made in any Proceedings (including those made before the Effective Date which have not been satisfied at the Effective Date) against either of the Transferors will be deemed to have been made and will be enforceable against the Transferee. The Transferee may, with the consent of the Transferors (which is not required once the Transferors have been dissolved), agree on behalf of all persons concerned to any modification of or addition to the Scheme or any further condition or provision in the Scheme which the Court may approve or impose. In the case of an amendment affecting the substance of the relevant Scheme, the consent of the PRA, having consulted the FCA, will also be required. The PRA and FCA must be notified of any application to Court to amend the Scheme. The consent of the Court will not be required for minor and/or technical amendments agreed between the Transferor and the Transferee provided the PRA have been notified and have confirmed their non-objection in writing. The Scheme will be governed by and construed in accordance with English law. Legal.46871160.13/GQUI/36989.00001 7 02.08.17
Appendix 2: Summary of the Independent Expert s Report Legal.46871160.13/GQUI/36989.00001 8 02.08.17
Appendix 3: Legal notice Legal.46871160.13/GQUI/36989.00001 9 02.08.17
IN THE HIGH COURT OF JUSTICE CR- 2017-004051 CHANCERY DIVISION COMPANIES COURT DATED BETWEEN KX REINSURANCE COMPANY LIMITED -and- OX REINSURANCE COMPANY LIMITED -and- CATALINA LONDON LIMITED -and- PART VII OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 TRANSFER OF INSURANCE BUSINESS NOTICE IS HEREBY GIVEN that, by application dated 20 July 2017, KX Reinsurance Company Limited (formerly known as The Maltese Cross Insurance Company Limited, Lombard Insurance Company (U.K.) Limited, Lombard Insurance (U.K.) P.L.C, Lombard Elizabethan Insurance plc, Lombard Continental Insurance plc, Lombard Continental Insurance Limited and Continental Management Services Limited) and OX Reinsurance Company Limited (formerly known as Storebrand Insurance Company (U.K.) Limited, Uni Storebrand Insurance Company (UK) Limited and Oslo Reinsurance Company (UK) Limited) (the Transferors ), applied to the High Court of Justice of England and Wales for, amongst other things, an order under Section 111(1) of the Financial Services & Markets Act 2000 (the Act ) sanctioning an insurance business transfer scheme (the Scheme ) providing for the transfer of insurance and reinsurance business (comprising policies, assets and liabilities) to Catalina London Limited (the Transferee ) and for an order making provision under Section 112 of the Act. The business included in the proposed transfer comprises all of the insurance and reinsurance business underwritten or assumed (in whole or in part) whether by way of portfolio transfer or otherwise, by the Transferors. Legal.46871160.13/GQUI/36989.00001 10
If you are in any doubt as to whether your insurance policy is included in the proposed transfer please contact the parties at the contact details set out below. Copies of a report on the terms of the Scheme prepared by an independent expert in accordance with section 109 of the Act (the Scheme Report ) and copies of a statement setting out the terms of the Scheme and containing a summary of the Scheme Report may be obtained, free of charge, by contacting Catalina London Limited at 18 Mansell Street, London E1 8AA Ref: Ian Grottick Email: IanGrottick@CatalinaRe.com Telephone: 44 (0)20 7265 5026 or may be downloaded from the website http://www.catalinalondon.co.uk/partvii. Anyone who has questions regarding the proposed transfer or who requires any further information regarding the transfer may also contact Catalina London Limited at the above address and reference. The application will be heard on 17 November 2017 before a Judge of the Chancery Division of the High Court at The Rolls Building, 7 Rolls Buildings, Fetter Lane, London, EC4A 1NL, United Kingdom. Any person (including an employee of the Transferors or the Transferee) who alleges that he or she would be adversely affected by the carrying out of the Scheme is entitled to: 1 MAKE REPRESENTATIONS IN WRITING. 2 APPEAR AT THE HEARING AND MAKE REPRESENTATIONS IN PERSON; OR 3 INSTRUCT A BARRISTER OR SOLICITOR ADVOCATE TO APPEAR AT THE HEARING AND MAKE REPRESENTATIONS ON HIS/HER BEHALF. If you intend to appear at the hearing in person, or to instruct someone to appear on your behalf, you are requested to give notice of your intention to do so in writing, setting out the reasons why you believe you may be adversely affected. You are requested but not required to send such notice, or if you are not intending to appear in person or by your legal representative, any written representations that you may have, to Catalina London Limited at the address provided above or to Berwin Leighton Paisner LLP, Adelaide House, London Bridge, London, EC4R 9HA (Ref: Geraldine Quirk). Please provide such notice or such written representations by close of business on 10 November 2017. If the Scheme is sanctioned by the Court, it will result in the transfer of all the contracts, property, assets and liabilities of the Transferors to the Transferee, notwithstanding that a person would otherwise be entitled to terminate, modify, acquire or claim an interest or right or to treat an interest or right as terminated or modified as a result of the transfer of business effected by the Scheme. Any such right will only be enforceable to the extent the order of the Court makes provision to that effect. Berwin Leighton Paisner LLP, Adelaide House, London Bridge, London, EC4R 9HA Solicitors to the Transferor and the Transferee (Ref: Geraldine Quirk). Legal.46871160.13/GQUI/36989.00001 11
CR-2017-004051 IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION COMPANIES COURT BETWEEN KX REINSURANCE COMPANY LIMITED -and- OX REINSURANCE COMPANY LIMITED -and- CATALINA LONDON LIMITED -and- PART VII OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 TRANSFER OF INSURANCE BUSINESS Ref: GQUI/36989.00001 Berwin Leighton Paisner LLP Adelaide House London Bridge London EC4R 9HA Tel: +44 (0)20 3400 1000 Fax: +44 (0)20 3400 1111