Re Cigna Worldwide Insurance Co and Another

HCMP 1039/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1039 OF 2006

____________

____________

Before: Hon Kwan J in Court

Date of Hearing: 6 September 2006

Date of Judgment: 6 September 2006

Date of Handing Down of Reasons for Judgment:  8 September 2006

__________________________

REASONS  FOR  JUDGMENT

__________________________

1.This is a petition presented by CIGNA Worldwide Insurance Company (“CIGNA Worldwide”) and CIGNA Worldwide Life Insurance Company Limited (“CIGNA Life HK”) pursuant to section 24 of the Insurance Companies Ordinance, Cap. 41. The petitioners seek sanction of the court to a scheme for the transfer to CIGNA Life HK of the whole of a long term insurance business carried on by CIGNA Worldwide in Hong Kong, and an order under section 25 of ancillary provisions for implementing the scheme. At the conclusion of the hearing, I have granted the reliefs sought and these are the reasons for judgment.

The companies and the long term business

2.CIGNA Worldwide was incorporated in the state of Delaware, the United States of America. It is part of the CIGNA Group and is wholly owned by CIGNA Corporation through intermediary holding companies. CIGNA Corporation is a publicly listed corporation also incorporated in the state of Delaware, with consolidated shareholders’ equity of US$5,658 million as of 30 September 2005.

3.CIGNA Worldwide is registered as an oversea company under Part XI of the Companies Ordinance, Cap 32. It is an authorised insurer under Cap. 41 with authorisation to carry on long term business of Class A (Life and Annuity), Class C (Linked Long Term), Class D (Permanent Health), Class G (Retirement Scheme Management Category I), Class H (Retirement Scheme Management Category II) and Class I (Retirement Scheme Management Category III) in or from Hong Kong. After 2002, CIGNA Worldwide has not carried out Class G and Class H businesses in Hong Kong.

4.CIGNA Life HK was incorporated in Hong Kong on 19 July 2005 for the specific purpose of accepting the transferred business. It is also part of the CIGNA Group. Through intermediary holding companies, it is wholly owned by CIGNA Corporation.

5.On 31 March 2006, CIGNA Life HK made an application to the Insurance Authority for authorisation to carry on long term business of Classes A, C, D and I in or from Hong Kong. The Insurance Authority has indicated by letter dated 12 May 2006 that the grant of authorisation will be conditional upon, inter alia, the sanction of the court of the proposed transfer.

6.The long term business in Hong Kong agreed to be transferred comprises all insurance policies of Classes A, C, D and I, whether individual or group, whether they have expired, lapsed, or been cancelled or terminated, issued by the Hong Kong branch of CIGNA Worldwide on or before the transfer date and including all proposals for insurance received before the transfer date (“the Transferring Policies”).

The scheme

7.The scheme provides for the transfer by CIGNA Worldwide to CIGNA Life HK of the Transferring Policies and the Transferring Liabilities as defined therein.

8.One of the purposes of the transfer was to better protect the interests of Hong Kong policyholders so that the income received by them shall not be subject to United States withholding tax, and place them in a better position to be insulated from any adverse events that occur outside Hong Kong such as future adverse tax ruling in the United States.

9.In compliance with section 24(2), an independent actuary has prepared a report on the Scheme. He is of the opinion that the scheme shall not materially adversely affect the benefit expectations, security, or service of the current CIGNA Worldwide’s policyholders or the corporate governance of CIGNA Life HK. Based on his investigations and analysis, he believes that the scheme may be advantageous to CIGNA Worldwide’s policyholders as it establishes out of the current branch structure two independent companies where the long term and general business will be separately operated. CIGNA Life HK would maintain an initial solvency margin of at least 200% immediately upon transfer, this is at a level higher than that imposed on an ongoing insurer in Hong Kong set by the Insurance Authority. The commitment made by CIGNA Life HK in correspondence with the Insurance Authority to maintain a solvency level of at least 200% immediately upon transfer and thereafter, for a period of time which will be subject to review and agreement by the Insurance Authority, and a target long term solvency margin of 150% at all times as specified in the letter of undertaking of CIGNA Holdings Overseas Inc., would provide CIGNA Worldwide’s policyholders with a relatively high degree of security. The independent actuary is not aware of any information that is expected to lead to a material change in the ability of CIGNA Life HK to meet regulatory solvency margin requirement before or after the effective date of the scheme.

The pre-conditions for sanction

10.Each of the requirements in section 24(3) has been complied with.

11.A statutory statement setting out the terms of the scheme and containing a summary of the independent person’s report has been sent to each holder of the Transferring Policies identified and registered on the Hong Kong register of CIGNA Worldwide’s database and to the last known address for each such policyholder on that database. At the hearing of the summons for directions on 6 June 2006, I directed that the requirement to send the statutory statement to every member of CIGNA Worldwide and CIGNA Life HK under section 24(3)(b) was to be dispensed with.

12.A statutory notice stating that this petition has been presented and giving the addresses of the offices at which and the period for which copies of the petition, the scheme, the statutory statement and the independent actuary’s report would be available for inspection has been published in the government gazette, and an English and Chinese newspaper circulating in Hong Kong. Copies of the petition, the statutory statement, the scheme and the independent actuary’s report have been made available for inspection. A logbook and registration system was maintained regarding the inspection.

13.Copies of the petition, the scheme, the independent actuary’s report and the statutory statement have been served on the Insurance Authority. 

14.In addition to the statutory requirements, I also directed CIGNA Worldwide to post and maintain the aforesaid documents on its website up to the substantive hearing of the petition. Due to an inadvertent error, the petition had been left out from the posting. This omission was immediately rectified when it came to the attention of CIGNA Worldwide on 22 August 2006.

The enquiries and objections received

15.As of the close of business on 31 August 2006, 4,608 telephone enquiries have been received through the customer hotline. The major types of questions asked were the details of the proposed transfer of long term business, the reasons therefore, the changes as a result, the benefits of the transfer to policyholders, and the availability of financial back-up from the head office in the United States to CIGNA Life HK after the transfer.

16.Seven policyholders raised concerns about the transfer and requested to keep their policies with CIGNA Worldwide or obtain a refund of premium. Some claimed they did not want to deal with a Hong Kong incorporated insurer, while others did not clearly state the grounds of objection. After the explanation by the customer services representatives of CIGNA Worldwide that the interests of the policyholders have been fully safeguarded and that their benefits under the policies would not be adversely affected, no further requests or enquiries were received from these policyholders.

17.One other policyholder approached the Consumer Council and requested to keep his policy with CIGNA Worldwide or obtain a refund of premium. The request was forwarded to CIGNA Worldwide and its customer services representative explained to him the reasons for the transfer. No follow-up enquiries have been received.

18.No other objections have been received and no evidence in opposition was filed. No one has appeared at the hearing of the petition to oppose sanction.

19.The Insurance Authority has indicated in its letter dated 30 August 2006 that formal authorisation will be granted to CIGNA Life HK after sanction has been given by the court.

The applicable principles

20.In Re Winterthur Life [2005] 3 HKC 34 at 41C to 42E, I have followed and applied English decisions on the principles on which the court would sanction a scheme under the former section 49 of the Insurance Companies Act 1982, on which our section 24 is based (Re London Life Assurance Limited, 21 February 1989, Hoffman J, unreported; Re AXA Equity and Law Life Assurance Society plc [2001] 2 BCLC 447 at 468e to 469b). I do not propose to set out the principles summarised by Evans-Lombe J in Re AXA Equity.

Sanctioning the scheme

21.I accept the submissions of Mr. Coleman, SC that the scheme is commercially justified and well intentioned. I ought to give due recognition to the commercial judgment of the management of the petitioners. I have borne in mind that the Insurance Authority has been kept fully informed as to the progress of the proposed transfer of business, it has been consulted throughout the statutory procedure, and has indicated approval in principle to the grant of the necessary licences to CIGNA Life HK. The independent actuary’s report is favourable. The individual enquiries of CIGNA Worldwide’s policyholders have been responded to and dealt with.

22.I am satisfied that the scheme is fair on the whole and it would be appropriate to give sanction to it. I have therefore made an order in terms of the draft submitted.

Mr. Russell Coleman, SC, instructed by Baker & McKenzie, for the Petitioners

Mr. Johnny Chan, for the Insurance Authority