Report of the Independent Actuary

103 Pages·2017·1.29 MB·English

Report of the Independent
Actuary
December 1 2017

Table of Contents
Section 1 : Introduction ................................................................................................................1
Background .............................................................................................................................1
The role of the Independent Actuary ..........................................................................................3
Scope of my report ...................................................................................................................3
Terms of reference ...................................................................................................................4
Reliances and Limitations .........................................................................................................4
Section 2 : Information on which this report is based ..................................................................5
Scheme of Transfer ..................................................................................................................5
HLI key documents ...................................................................................................................6
ALI key documents ...................................................................................................................6
HLA key documents .................................................................................................................7
UHL key documents .................................................................................................................7
Reliances.................................................................................................................................7
Section 3 : Background to the Participant Companies.................................................................9
HLI history ............................................................................................................................. 10
The business of HLI................................................................................................................ 10
HLA history ............................................................................................................................ 18
The business of HLA .............................................................................................................. 18
ALI history.............................................................................................................................. 21
The business of ALI ................................................................................................................ 21
UHL history ............................................................................................................................ 24
The business of UHL .............................................................................................................. 24
Section 4 : Main features of the Scheme .................................................................................... 27
Scope of transfer .................................................................................................................... 27
Effective Time ........................................................................................................................ 28
Conditions for Scheme to become operative ............................................................................ 28
Contractual rights ................................................................................................................... 28
With-Profits funds ................................................................................................................... 29
Non-Profits funds ................................................................................................................... 29
Unit-linked funds .................................................................................................................... 29
Unit-linked charges ................................................................................................................. 30
New business ........................................................................................................................ 31
ii
Tax 31
Further assurance clause........................................................................................................ 31
Continuity of Proceedings ....................................................................................................... 31
Costs of the Scheme .............................................................................................................. 31
Policyholder communications .................................................................................................. 31
Section 5 : Pre-Scheme Solvency Positions .............................................................................. 33
Introduction ............................................................................................................................ 33
Opening Solvency Position ..................................................................................................... 35
Reported Basis ...................................................................................................................... 35
Adjusted Basis ....................................................................................................................... 36
Economic Basis...................................................................................................................... 38
HLI – Pre Transfer Solvency Position....................................................................................... 39
Reconciliation between Reported and Adjusted figures ............................................................. 39
Reconciliation between Adjusted and Economic Basis .............................................................. 40
HLI SCR ................................................................................................................................ 40
HLA – Pre Transfer Solvency Position ..................................................................................... 42
Reconciliation between Reported and Adjusted figures ............................................................. 42
Reconciliation between Adjusted and Economic Basis .............................................................. 43
HLA SCR ............................................................................................................................... 43
ALI – Pre Transfer Solvency Position ....................................................................................... 46
Reconciliation between Reported and Adjusted figures ............................................................. 46
Reconciliation between Adjusted basis and Economic Basis ..................................................... 47
ALI SCR ................................................................................................................................ 47
UHL – Pre Transfer Solvency Position ..................................................................................... 49
*or Solvency I equivalent......................................................................................................... 49
Reconciliation between Reported and Adjusted figures ............................................................. 49
Reconciliation between Adjusted figures and Economic Basis ................................................... 50
UHL SCR............................................................................................................................... 50
Section 6 : Effects of the Scheme on HLI Policyholders ............................................................ 53
General Considerations .......................................................................................................... 53
Security of HLI policyholders’ benefits ...................................................................................... 54
i) Opening Solvency position ............................................................................................ 54
ii) Risk Profile ................................................................................................................... 56
iii) Projected Solvency position ........................................................................................... 60
Summary - Security ................................................................................................................ 63
Reasonable Expectations of HLI policyholders ......................................................................... 63
i) Funds .......................................................................................................................... 63
ii) Reinsurance arrangements............................................................................................ 64
iii) Pricing basis for unit-linked funds ................................................................................... 64
iv) Charges ....................................................................................................................... 64
v) Service......................................................................................................................... 64
vi) Options ........................................................................................................................ 65
vii) Tax .............................................................................................................................. 65
Conclusion ............................................................................................................................. 65
Section 7 : Effects of the Scheme on HLA Policyholders ........................................................... 67
Introduction ............................................................................................................................ 67
Security of HLA policyholders’ benefits .................................................................................... 67
i) Solvency position .......................................................................................................... 67
iv) Risk Profile ................................................................................................................... 69
v) Projected solvency ........................................................................................................ 71
Summary - Security ................................................................................................................ 72
Reasonable Expectations of HLA policyholders ........................................................................ 72
i) Funds .......................................................................................................................... 72
ii) Reinsurance arrangements............................................................................................ 72
iii) Pricing basis for unit-linked funds ................................................................................... 72
iv) Charges ....................................................................................................................... 73
v) Service......................................................................................................................... 73
vi) Options ........................................................................................................................ 73
vii) Tax .............................................................................................................................. 73
Conclusion ............................................................................................................................. 74
Section 8 : Effects of the Scheme on ALI Policyholders ............................................................ 75
Introduction ............................................................................................................................ 75
Security of ALI policyholders’ benefits ...................................................................................... 75
i) Solvency position .......................................................................................................... 75
ii) Risk Profile ................................................................................................................... 77
ii) Projected Solvency position ........................................................................................... 78
Summary - Security ................................................................................................................ 78
Reasonable Expectations of ALI policyholders ......................................................................... 78
i) Funds .......................................................................................................................... 78
ii) Reinsurance arrangements............................................................................................ 79
iii) Pricing basis for unit-linked funds ................................................................................... 79
iv) Charges ....................................................................................................................... 79
v) Service......................................................................................................................... 79
vi) Options ........................................................................................................................ 80
vii) Tax .............................................................................................................................. 80
Conclusion ............................................................................................................................. 80
Section 9 : Effects of the Scheme on UHL Policyholders ........................................................... 81
Introduction ............................................................................................................................ 81
iv
Security of UHL policyholders’ benefits .................................................................................... 81
i) Solvency position .......................................................................................................... 81
iii) Risk Profile ................................................................................................................... 82
iv) Projected Solvency position ........................................................................................... 83
Summary - Security ................................................................................................................ 84
Reasonable Expectations of UHL policyholders ........................................................................ 84
i) Contractual rights.......................................................................................................... 84
ii) Funds .......................................................................................................................... 84
iii) Reinsurance arrangements............................................................................................ 84
iv) Pricing basis for unit-linked funds ................................................................................... 84
v) Charges ....................................................................................................................... 84
vi) Service......................................................................................................................... 85
vii) Options ........................................................................................................................ 85
viii) Tax .............................................................................................................................. 85
Conclusion ............................................................................................................................. 85
Section 10 : Policyholder Communications ............................................................................... 87
Policyholder Communication regarding the proposed transfer ................................................... 87
Section 11 : Summary and overall conclusions ......................................................................... 89
Appendix A : Reliances and limitations......................................................................................... 91
Reliances............................................................................................................................... 91
Limitations ............................................................................................................................. 91
Legal jurisdiction .................................................................................................................... 92
Appendix B : Definitions ............................................................................................................ 93
Appendix C : Glossary ............................................................................................................... 93
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1
Section 1: Introduction
Background
1.1 Life Company Consolidation Group (“LCCG”) is a Guernsey based financial services group
that through its Irish subsidiary LCCG Ireland Limited (“LCCGI”) has acquired a number of life
insurance companies.
1.2 In March 2015, LCCGI acquired IBRC Assurance Company (“IBRC”). Following the change in
ownership IBRC was renamed as Harcourt Life Assurance Company Limited. On 3 May 2016
Harcourt Life Assurance Company Limited changed its name to Harcourt Life Assurance
Designated Assurance Company1 (“HLA”). The principal activity of HLA was the provision of
investment oriented life assurance and pension products to individuals in Ireland. HLA closed
to new business in 2011 and continues to run off its existing book.
1.3 On 1 December 2015, all employment contracts of serving employees of HLA were transferred
to a subsidiary of LCCGI, Harcourt Life Services Limited (“HLSL”). HLSL, as a services
company, provides policy administration and other administration and management services to
HLA and other life assurance entities within the LCCGI Group (both those open to new
business and those closed to new business).
1.4 On 2 December 2015, HLA acquired Scottish Mutual International Limited from Phoenix Life
Limited (“PLL”). Scottish Mutual International Limited was renamed Scottish Mutual
International dac in 2016 and on 3 November 2017 was renamed Harcourt Life Ireland dac
(“HLI”). HLI is a life assurance company in run-off that has been closed to new business since
2003 and whose policy administration and management services are outsourced to third party
providers.
1.5 On 26 July 2016, HLA acquired Aviva Life International Limited from Aviva International
Holdings Limited. Aviva Life International Limited was subsequently renamed Harcourt Life
International dac. At the end of June 2017, Harcourt Life International dac acquired the
overseas bond business of AXA Life Europe dac, re-opened to the writing of new business and
was renamed Utmost Ireland dac (“Utmost”). Utmost is the designated assurance company
within LCCGI that is open to new business. In June 2017, LCCGI restructured the companies
within the group by transferring ownership of Utmost from HLA to LCCGI by means of an in-
specie dividend.
1.6 On 30 November 2016, HLA acquired Augura Life Ireland dac (“ALI”) and Altraplan Bermuda
Limited (“Altraplan”) from the OneLife Group. ALI was originally established in 1984 selling
traditional non-profit whole of life assurance, unit-linked life and pension business to customers
in Ireland. From 2004, it ceased writing new policies until 2011, when, under new ownership, it
commenced writing new business, selling unit-linked bonds in Sweden and Norway. Altraplan
is a unit-linked business, authorised in Bermuda, whose objective is to sell unit-linked life
assurance policies to high net worth investors. Altraplan is closed to new business and is in
the process of running off its book of business.
1.7 On 9 March 2017, Union Heritage Life Assurance Company dac (“UHL”) was acquired by HLA
from American Income Life Insurance Company which is part of the Torchmark Corporation
Group in the United States of America. UHL commenced writing policies in August 2012,
primarily writing protection or risk business policies in Ireland. In February 2015, UHL
discontinued activities to market and sell insurance policies and ceased writing new business
towards the end of 2015.

1 Designated Assurance Company or “dac”
2
1.8 The proposed Scheme, which is the subject of this report, aims to bring together the various
life assurance companies within the LCCGI Group that are closed to new business and in run
off into a single life assurance entity. The proposed Scheme will transfer the ALI, HLA and
UHL business into HLI. Following the Scheme, HLI will become the closed book consolidator
within the Group, i.e. the life assurance entity within LCCGI into which any future acquisitions
of closed books of life assurance business will be transferred.
1.9 The structure of LCCGI before the proposed Scheme is set out in Table 1.1 below and the
planned structure post the proposed Scheme is show in Table 1.2 below.
Table 1.1 – LCCGI structure before transfer
LCCGI
HLA HLSL Utmost
HLI Altraplan ALI UHL

Table 1.2 – LCCGI structure after transfer
LCCGI

HLA HLSL Utmost

ALI UHL
HLI
(Empty Shell) (Empty Shell)

Altraplan

1.10 The LCCGI strategy in Ireland is to create a consolidated closed book business, (i.e. HLI after
the Scheme is complete), together with an open book business specialising in writing overseas
life assurance bond business (i.e. Utmost).