CANADA LIFE ASSURANCE (IRELAND) LIMITED IRISH LIFE ASSURANCE PLC COMMUNICATION ABOUT PROPOSED TRANSFER OF LIFE ASSURANCE BUSINESS

Transcription

1 This Document is important - please read it carefully. No action is required but if you have any doubt about the proposals you should consult your professional adviser CANADA LIFE ASSURANCE (IRELAND) LIMITED IRISH LIFE ASSURANCE PLC COMMUNICATION ABOUT PROPOSED TRANSFER OF LIFE ASSURANCE BUSINESS

2 Contents of this circular PART 1 Letter from Ruairí O Flynn on behalf of Canada Life Assurance (Ireland) Limited and David McCarthy on behalf of Irish Life Assurance plc PART 2 Summary of proposed transfer PART 3 Questions and answers PART 4 Report of the Independent Actuary (Short Form) PART 5 Corporate information PART 6 List of offices and contact numbers Appendix Definitions 2

3 Part 1 Dear Policyholder, Introduction The purpose of this pack ( the Communication Pack ) is to inform you, on behalf of Canada Life Assurance (Ireland) Limited ( Canada Life Ireland ) and Irish Life Assurance plc ( Irish Life ), that we are proposing that the life assurance business of Canada Life Ireland be transferred to Irish Life. For convenience, we refer throughout this Communication Pack to the proposal as the proposed transfer. Combining Canada Life Ireland and Irish Life into one business On 19 February 2013 it was announced that Great-West Lifeco Inc. ( Great-West Life ), the owner of the Canada Life Group, was to buy Irish Life from the Minister for Finance. The transaction completed on 18 July Since that date, Canada Life Ireland and Irish Life have been in common ownership. Merging the businesses of Canada Life Ireland and Irish Life together will allow us to reduce our overall regulatory and administrative costs without any adverse impacts on our policyholders. This Communication Pack is part of a legal process (described in detail below) which ensures that the interests of policyholders are protected and that you are fully informed about the proposed transfer. You do not need to take any action whatsoever in respect of this Communication Pack or the proposed transfer, but you do have a right to object to what is proposed. Certain definitions (usually capitalised) are used in this Communication Pack and their meanings are given in the Appendix at the back of this pack. Canada Life Ireland policyholders Canada Life Ireland policyholders will not experience any noticeable change in doing business with us after the proposed transfer takes effect. There will be no change to your policy s terms and conditions. For example, any existing arrangements for making payments to us, such as by direct debit or standing order, will continue as normal. This is because all necessary changes to service arrangements will be made on behalf of policyholders by Canada Life Ireland and Irish Life. Subject to receipt of all necessary regulatory and Court approvals, it is anticipated that the proposed transfer will take effect on 1 January However, it is planned that policies will only move from Canada Life systems to Irish Life systems over 2014 and With effect from 1 January 2014 all communications will be branded Irish Life. While we will make every effort to remove references to Canada Life in documentation in advance of the move to Irish Life systems, should you come across a reference to Canada Life, this should be read as a reference to Irish Life. You may receive more than one copy of this Communication Pack if you have more than one policy with Canada Life Ireland. We apologise for this but with a large number of policies in force it is possible that some duplication could occur. If you no longer have a policy in place, you should not have received this Communication Pack and we apologise for any inconvenience. Irish Life policyholders If your policy is already with Irish Life, it will not move, and there will be no change to its terms and conditions. The only impact on you will be that Irish Life will take on policies that are currently with Canada Life Ireland, but will also receive assets currently maintained by Canada Life Ireland to meet payments which are or will become due under those policies. About the proposed transfer A summary of the proposed transfer is contained in Part 2 of this pack. Subject to receipt of all necessary regulatory and Court approvals, it is anticipated that the proposed transfer will take effect on 1 January

4 Actuaries reports to policyholders To safeguard the interests of policyholders, and as legally required, an Independent Actuary has reviewed the terms of the proposed transfer. This review has been carried out by Michael Culligan FSAI (Fellow of the Society of Actuaries in Ireland). Mr Culligan is a Principal in Milliman, a firm of Actuarial Consultants. His Short Form Report for policyholders on the proposed transfer is set out in Part 4. You will see that Mr Culligan concludes that the security of benefits of policyholders of both Canada Life Ireland and Irish Life should not be materially adversely affected by the proposed transfer and that the fair treatment and reasonable benefit expectations of both sets of policyholders should not be materially adversely affected by the proposed transfer. Reports on the proposed transfer have also been prepared by the Appointed Actuary of Canada Life Ireland, Linda Kerrigan FSAI, and by the Appointed Actuary of Irish Life, Dervla Tomlin FSAI. Both Ms Kerrigan and Ms Tomlin also conclude that the security of benefits of the policyholders of both Canada Life Ireland and Irish Life should not be materially adversely affected by the proposed transfer and that the fair treatment and reasonable benefit expectations of both sets of policyholders should not be materially adversely affected by the proposed transfer. A copy of a more detailed Long Form Report prepared by the Independent Actuary, which has also been provided to the Central Bank of Ireland and will be provided to the Court, is available on ie and Copies of the reports of the Appointed Actuaries of Canada Life Ireland and Irish Life, both of which will also be provided to the Central Bank of Ireland and the Court, are also available on our websites. Implementing the proposed transfer The proposed transfer does not require the consent of policyholders, but it must be confirmed by the Court before the transfer can occur. A petition (or application) was presented by the Directors of Canada Life Ireland to the Court on 19 July 2013 asking the Court to confirm the proposed transfer. This application will be considered by the Court on 6 November The Court will hear from any person that it considers to have an entitlement to be heard (including any policyholder) and may confirm the proposed transfer if it is satisfied that no sufficient objection has been established. If the proposed transfer is approved by the Court, it will be effective from 1 January Confirmation of the hearing date will be published in the legal notices sections of at least two daily newspapers and on our websites Further Information If you have any questions, or if you want further copies of this Communication Pack, please call us on our helpline at or from outside Ireland: , contact us by or write to us. Our contact details are provided in Part 6 of this Communication Pack. Information regarding the proposed transfer is also available on and If you wish, you can also consult your own professional adviser. The following information will be available for inspection until the date of the court hearing during normal business hours at the offices listed in Part 6 of this Communication Pack: Copies of this Communication Pack Canada Life Ireland s application to Court seeking approval for the proposed transfer (which includes the terms of the proposed transfer) The financial statements of Canada Life Ireland for the year ending 2012 The Annual Report of Irish Life for the year ending 2012 The Long Form Report of the Independent Actuary and the reports of the Appointed Actuaries of Canada Life Ireland and Irish Life These documents will also be provided on request by the solicitors acting for the two companies, McCann FitzGerald of Riverside One, Sir John Rogerson s Quay, Dublin 2 ( , ref. SEB/DPM/CED). 4

5 Conclusion The Directors of Canada Life Ireland and Irish Life believe that the transfer of Canada Life Ireland s business to Irish Life will lead to a more efficient operating unit for the benefit of all Canada Life Ireland and Irish Life policyholders without materially adversely affecting the security and future benefit prospects of any policyholder, whether of Canada Life Ireland or Irish Life. Thank you for your business. We look forward to continuing to serve your financial planning needs under the Irish Life brand. Yours faithfully Ruairí O Flynn Managing Director Canada Life Assurance (Ireland) Limited David McCarthy Director Irish Life Assurance plc 5

6 Part 2 - Summary of the proposed transfer This Part 2 contains a statement summarising the nature of the proposed transfer and an abstract of the material facts under which the proposed transfer is to take place. The proposed transfer records the agreement of Canada Life Ireland and Irish Life to transfer the business of Canada Life Ireland to Irish Life with effect from hours on 1 January It provides in particular that the business of Canada Life Ireland shall, by Court Order, be transferred to Irish Life and dealt with as set out in the proposed transfer subject to applicable legislation and regulatory requirements. Interpretation The meanings of terms and expressions defined in the proposed transfer and used in this summary are as set out in the Appendix. Transfer of assets and liabilities If the High Court approves the proposed transfer, the business will, so far as legally possible, transfer by Order of the Court from Canada Life Ireland to Irish Life without any further act or instrument on the Effective Date, which is intended to be at hours on 1 January On the Effective Date, all assets associated with the business except for Excluded Assets will, so far as legally possible, transfer from Canada Life Ireland to Irish Life. However, if any relevant asset cannot legally transfer on that date, both companies will take every action possible to ensure that the relevant asset is fully transferred to Irish Life as soon as possible after the Effective Date. The proposed transfer provides that Excluded Assets will not be transferred from Canada Life Ireland to Irish Life. Excluded Assets comprise 4,000,000 in cash (required to meet the ongoing capital requirements of Canada Life Ireland). It is not envisaged that any other assets will be excluded from the transfer but if any other asset is to be excluded then either (i) Canada Life Ireland must provide a replacement asset of equal value or (ii) the Independent Actuary and the Appointed Actuaries of Canada Life Ireland and Irish Life must certify that the value of the asset is negligible and its exclusion would not impact on their respective assessments of the impact of the transfer on the security of benefits and reasonable benefit expectations of Canada Life Ireland and Irish Life policyholders. Similarly, on the Effective Date, all liabilities associated with the business will, so far as legally possible, transfer from Canada Life Ireland to Irish Life. However, if any relevant liability cannot legally transfer on that date, both companies will take every action possible to ensure that the relevant liability is fully transferred to Irish Life as soon as possible after the Effective Date. Management of Sub-Funds Following the Effective Date, Irish Life will continue to maintain the Irish Life Assurance Ordinary Branch Continuing Fund (the Irish Life Assurance Continuing Fund) as a Sub-Fund of the Irish Life Assurance Fund (the fund it is required to maintain under the Insurance Acts). This Sub-Fund will continue to operate under the same terms which apply before the Effective Date. On the Effective Date, the assets and liabilities of the Canada Life Ireland Non-Par Sub-Fund will be allocated to and merge with the Irish Life Assurance Continuing Fund. On and from the Effective Date, Irish Life will establish and it will then maintain (subject to the terms of the proposed transfer) two new separate Sub-Funds within the Irish Life Assurance Fund: (1) The Irish Life Assurance Closed Par Sub-Fund (solely for the purpose of receiving the assets and liabilities of the Canada Life Ireland Individual Life Closed Par Sub-Fund); and (2) The Irish Life Assurance Open Par Sub-Fund (solely for the purpose of receiving the assets and liabilities of the Canada Life Ireland Individual Life Open Par Sub-Fund). 6

7 Each of these Sub-Funds will then continue to be operated in accordance with the same terms which were applied by Canada Life Ireland before the Effective Date. On and from the Effective Date, the assets and liabilities of the Canada Life Shareholder Fund (the assets of the company which are not attributable to policies) will be allocated to and merge with the Irish Life Shareholder Fund (the assets of that company which are not attributable to policies). Future operations of Irish Life Subject in every case to the provisions of the applicable conditions of any relevant policy, the rules of any relevant investment fund, and where relevant, the opinion of the Appointed Actuary, Irish Life may: exercise such discretions under the Transferred Policies as are available to be exercised by it under the terms and conditions of those policies in accordance with the applicable principles, and having regard to such considerations, as are from time to time in use in relation to such business in the Canada Life Group; modify the terms and conditions applicable to any policy or investment fund, in accordance with the principles, and having regard to such considerations, as are from time to time in use in relation to such business in the Canada Life Group. Additionally, from the Effective Date, Irish Life will have the right to exercise the powers which prior to the Effective Date were exercisable by Canada Life Ireland to cease to maintain either the Irish Life Assurance Closed Par Sub-Fund or the Irish Life Assurance Open Par Sub-Fund and instead merge such Sub-Fund with the appropriate Fund or Sub-Fund maintained by Irish Life in respect of its policies at the time, in the same circumstances and subject to the same qualifications, conditions and provisions as the exercise of each such power by Canada Life Ireland prior to the Effective Date was subject. Internal linked funds The internal linked funds maintained immediately prior to the Effective Date by Canada Life Ireland in respect of Transferred Policies which are Linked Policies shall, on and from the Effective Date, be maintained by Irish Life and the assets and liabilities appropriated to each Canada Life Ireland linked fund immediately prior to the Effective Date shall, on the Effective Date, remain so appropriated by Irish Life. The rules of operation of the unit-linked funds will remain unchanged on and immediately following the Effective Date and future changes to the rules of operation will have to comply with the rules set out in the section above Future operations of Irish Life. Options If any Transferred Policy includes an option under the terms of the policy (for example, for the issue of a new, additional or replacement policy), then the option may be satisfied by the issue of a new Irish Life policy which complies with the terms of that option, or if such Policy or Policies are not available, the issue by Irish Life of the nearest available alternative Policy or Policies. Premiums Premiums attributable or referable to Transferred Policies will automatically on and after the Effective Date be due to Irish Life instead of Canada Life Ireland. Effective Date The proposed transfer is intended to become effective at hours on 1 January 2014 (unless some other date agreed by Canada Life Ireland and Irish Life is specified in a Court Order sanctioning the proposed transfer). Costs and expenses The costs and expenses of preparing and putting the proposed transfer into effect will be met by Canada Life Ireland and Irish Life, but not out of any asset allocated to support payments which will become due under any policy of assurance. Canada Life Ireland will cover any fees payable to legal advisors, tax advisors and the Independent Actuary in connection with putting the proposed transfer into effect. Modifications or additions Canada Life Ireland and Irish Life may jointly consent to any modification or addition to the proposed transfer or to any further condition or provision affecting it which the Court approves. 7

8 Part 3 Questions and Answers 1 Q. What are the benefits of the transfer? A. Since the acquisition of Irish Life by Great-West Life, Canada Life Ireland and Irish Life, while ultimately in common ownership, are operating in Ireland as two separate authorised life assurance businesses. The proposed transfer will streamline the business and make dealing with us clearer and more efficient. 2 Q. Will Canada Life Ireland policyholders retain their existing policies after the transfer? A. Yes. Following the transfer Irish Life will be responsible for all policies issued by Canada Life Ireland. There is no need for existing policy documents to be altered or for new policies to be issued. 3 Q. Do Canada Life Ireland policyholders have to sign a new direct debit? A. No. Premiums will be paid to Irish Life automatically after the transfer. No action is needed in relation to any existing direct debit mandate, standing order or any other instruction. 4 Q. What name will the combined organisation trade under? A. Following the transfer, the business will be carried on by Irish Life using the Irish Life name and brand. 5 Q. Have the likely effects of the proposed transfer on policyholders been assessed by anyone independent of Canada Life Ireland or Irish Life? A. Yes. By law, an Independent Actuary has to consider and report on the proposed transfer. The Short Form Report of the Independent Actuary is set out in Part 4 of this Communication Pack. You will see that he concludes that in his view, neither the security of benefits nor the reasonable benefit expectations of Canada Life Ireland or Irish Life policyholders should be materially adversely affected. Further, the proposed transfer will take place only after it has been considered and approved by the Court and following consultation with the Central Bank of Ireland. 6 Q. What is an actuary? A. An actuary is a professionally qualified person who uses mathematical methods to assess the financial behaviour and security of insurance companies. An actuary has a wide-ranging and in-depth knowledge of how insurance companies work and can use these skills to assess the impact of changes on them and on their policyholders. 7 Q. Why is the proposed transfer so detailed? A. The proposed transfer is a legal document which must be approved by the Court if it is to take effect. It therefore needs to be very precise and detailed, particularly since the intention behind many of its provisions is to ensure that the interests of all policyholders will be properly protected in the future. 8 Q. Why is the confirmation of the Court necessary? A. The law (section 13 of the Insurance Act 1909 and section 36 of the Insurance Act 1989) provides that the approval of the High Court is required for the proposed transfer to take place. The proposed transfer will not be confirmed unless the Court is satisfied that the interests of all policyholders will be properly protected in the future. 9 Q. Do I need to take any action? A. No. However, you do have a right to object to the proposed transfer as outlined in our response to question Q. When and how will I know whether the High Court has approved the proposed transfer? A. Because of the cost involved, we do not propose to notify each policyholder individually 8

9 following the High Court hearing. We will publicise the fact through newspaper notices and on our websites. You do not need to take any action as a result of the transfer. 11 Q. Will my policy be the same after the transfer? A. Yes. There will be no change to the terms and conditions of your policy. However, please see our response to question 12 below regarding the exercise of options. 12 Q. Will I be able to make changes to my policy or take advantage of any options under my policy A. Your ability to make changes to your policy depends on the terms and conditions of your policy. These terms and conditions will not change as a result of the transfer itself. However, where exercising an option contained in your policy requires a new policy to be issued, Irish Life will issue either an Irish Life policy which complies with the terms of that option, or if such a policy is not available, the nearest available alternative Irish Life policy. 13 Q. Is there any change to my contact point if I wish to contact someone about my Canada Life policy? A. From now until 31 December 2013, your contact point is still your Financial Advisor or Customer Services by phone at or by at customerservices@canadalife.ie. From January until further notice, your contact point for information relating to your policy will be your Financial Advisor or Customer Services by phone at or by at customer-services@irishlife.ie. Please note the change of address. If these contact details change in the future (for example when policies move from Canada Life systems to Irish Life systems over the period 2014 to 2015) we will write to you to let you know. 14 Q. What happens if the Court does not approve the transfer? A. If you are a Canada Life Ireland policyholder, your policy will continue to be with Canada Life Ireland. If you are an Irish Life policyholder, your policy will continue to be with Irish Life. 15 Q. Are there any risks for Irish Life customers as a result of this change? A. By law, an Independent Actuary has to consider and report on the proposed transfer. The Short Form Report of the Independent Actuary is set out in Part 4 of this Communication Pack. You will see that he concludes that in his view, no additional risks arise which are sufficiently large to materially adversely affect either the security of benefits or the reasonable benefit expectations of Irish Life policyholders. 16 Q. Can I call Irish Life now if I have any questions or if I have any questions on my Canada Life Ireland policy? A. As policies will move from Canada Life systems to Irish Life systems over the period 2014 to 2015, from now until December your contact point is still your Financial Advisor or Customer Services by phone at or by at Customerservices@canadalife.ie. From January until further notice, your contact point for information relating to your policy will continue to be your Financial Advisor or Customer Services by phone at or by at customer-services@irishlife.ie. Please note the change of address. If these contact details change in the future (for example when policies move from Canada Life systems to Irish Life systems over the period 2014 to 2015) we will write to you to let you know. 17 Q. Will I be able to see my Canada Life policy details now on the Irish Life self-service/on-line services system? A. As policies move from Canada Life systems to Irish Life systems over the period 2014 to 2015, we will write to you to confirm when you will be able to view your Canada Life policy details on Irish Life online services. From January , you will be able to access daily fund prices/performance for Canada Life funds via 18 Q. Can I object to the proposed transfer? A. You should review the full details contained in this Communication Pack. If, after reading the information, you feel you wish to object then you should seek independent professional advice as soon as possible. 9

10 If you wish to object to the proposed transfer, you are entitled to attend the Court on the day of the hearing of the Petition (scheduled for 6 November 2013) to object in person, or through your legal adviser. If you wish to be heard on the hearing of the Petition, you should send a notice of your intention to appear, in writing, to McCann FitzGerald Solicitors, Riverside One, Sir John Rogerson s Quay, Dublin 2 (ref SEB), no later than 5.00 p.m. on 4 November 2013 and you should indicate whether you support or oppose the Petition. If you wish to submit particular information to the Court at the hearing of the Petition on 4 November 2013, you should file an affidavit setting out those submissions with the Court and serve a copy of that affidavit on McCann FitzGerald at the address mentioned no later than 5.00 p.m. on 4 November Part 4 - Short Form Report of the Independent Actuary 1 INTRODUCTION 1.1 I, Michael Culligan, am a Principal of Milliman, Consultants & Actuaries and a consulting actuary based in the firm s Dublin insurance practice at Lower Mount Street, Dublin 2. I am a Fellow Member of the Society of Actuaries in Ireland, and have been so since I have been instructed by Canada Life Ireland and Irish Life to act as the Independent Actuary who is required by law to report to the High Court (the Court ) on the terms of the proposed transfer of the life assurance business of Canada Life Ireland to Irish Life. 1.3 My appointment as the Independent Actuary has been notified to the Central Bank of Ireland ( Central Bank ) which has confirmed that it has no objection to my appointment. 1.4 I have prepared this report for inclusion in the Communication Pack. I have also prepared a longer report (my Long Form Report ) for the purpose of the companies application to the Court. My Long Form Report provides more detail on the businesses of Canada Life Ireland and Irish Life, the terms and conditions of the proposed Scheme and my assessment of the likely impact of the Scheme on the policyholders of Canada Life Ireland and Irish Life. The Long Form Report is available for inspection or download as set out in the Communication Pack. 1.5 The proposed Scheme has been summarised in the Communication Pack and is not repeated in this report. I confirm that the summary of the Scheme in the Communication Pack is consistent with my understanding of the Scheme. 1.6 My terms of reference are set out in my Long Form Report and my assessment has been undertaken in the context of those terms. Both of my reports should be read in the context of the Scheme and not used for any other purpose. 1.7 My assessment has considered the full terms of the Scheme but has focused on: The security of policyholders benefits; and, The fair treatment of policyholders, including their reasonable benefit expectations. 1.8 I have relied on information provided to me by Canada Life Ireland and Irish Life, as set out in the Long Form Report. This report is subject to the same reliances and limitations as set out in the Long Form Report. 1.9 Any terms used in this report which are not specifically defined in this report are as defined in the Appendix in the Communication Pack. 2 CANADA LIFE IRELAND History and background 2.1 Canada Life Ireland was incorporated in Ireland on 6 April 1981 (as Abbey Life Assurance Ireland Limited). The name of the company was changed to its current name in Canada Life has also operated in Ireland through a branch of the Canadian company (the Irish branch ) and through a subsidiary of the Canadian company. However, all remaining business written through the Irish branch and the subsidiary of the Canadian company has already been transferred to Canada Life Ireland. 2.2 Canada Life Ireland is wholly owned by The Canada Life Assurance Company which is a company 10

11 incorporated in Canada which, in turn, is wholly owned by another Canadian company, Canada Life Financial Corporation. In 2003 Great-West Lifeco Inc. ( Great-West ) acquired Canada Life Financial Corporation. Nature of business written 2.3 The company has written a range of life assurance policies, some with benefits linked to the performance of investment funds ( linked business ) and others without ( non-linked business ). Some of Canada Life Ireland s non-linked business participates in profits, receiving bonuses which reflect the investment, mortality, lapse and expense experience of the fund in which their policy is invested ( participating business ) whilst other lines of non-linked business do not ( non-participating business ). 2.4 In summary, as at 31 December 2012, there were in excess of 149,000 policies in force and the mathematical reserves of the company totalled d3.35 billion. Some 8,900 of those policies, with mathematical reserves totalling d126.7 million, relate to participating business, with the balance relating to non-participating business. 2.5 The participating business comprises primarily endowment policies (i.e. life assurance policies which pay out after a specified term or on earlier death). There are also some whole-of-life policies and a small book of deferred annuities. These policies receive bonuses which reflect the investment, mortality, lapse and expense experience of the fund. 2.6 The non-participating business includes unit-linked pensions, savings and protection plans and a range of non-linked policies including annuities; term assurances providing both life cover and critical illness benefits; group life cover; and, group income protection. 2.7 The remainder of Canada Life Ireland s non-participating linked business comprises nonguaranteed unit-linked business, capital protected bonds, guaranteed unitised with profits ( UWP ) business and, more recently, a unit-linked product with investment performance guarantees (known as variable annuity business). Apart from the UWP and variable annuity business, Canada Life Ireland has not provided investment guarantees on its linked business (with the result that any change in the value of the assets underlying the internal linked funds is fully passed onto the policyholders in those funds). The capital protection provided under the capital protected bonds is provided by third parties and not by Canada Life Ireland; policyholders bear the risk that one or more of those third parties may default on its obligations. Structure 2.8 There are three sub-funds of Canada Life Ireland s long term business fund: Closed Participating ( Par ) Sub-Fund Open Par Sub-Fund Non-Par Sub-Fund 2.9 The Closed Par Sub-Fund and the Open Par Sub-Fund were established when Canada Life Ireland acquired the business of the Irish Branch on 1 October The Canada Life Assurance Company (of which the Irish Branch was a branch) converted from a mutual insurance company to a shareholder-owned insurance company through a process of demutualisation on 4 November As part of the demutualisation, operating rules were put in place with the aim of safeguarding the interests of existing participating policyholders as at the date of demutualisation. Participating policies that were written prior to demutualisation are maintained in the Closed Par Sub-Fund. The assets of the Closed Par Sub-Fund are solely for the benefit of those policies: no transfer of assets to shareholders is allowed out of the Closed Par Sub-Fund (other than to meet expenses in connection with the Closed Par Sub-Fund) Participating policies written on or after the demutualisation date are maintained in the Open Par Sub-Fund. The Open Par Sub-Fund was itself closed to new business in December A percentage of the cost of bonuses added to policies in this fund is transferred to the shareholder. Under the terms of the transfer of the Irish Branch to Canada Life Ireland in 2012, it was agreed that the percentage used for this purpose by Canada Life Ireland will continue to follow the percentage set by The Canada Life Assurance Company for its Open Participating funds. The percentage has varied from 3% to 3.5% p.a. of bonuses since demutualisation (3.17% in 2012) Non-participating business is written in the Non-Par Sub-Fund All assets and liabilities other than life assurance business assets and liabilities are maintained in the Canada Life Ireland Shareholder Fund. 11

12 Risk profile 2.13 The range of risks to which Canada Life Ireland is exposed includes financial market risk, counterparty default/credit risk, insurance risk, business/operational risk, regulatory compliance risk and fiscal risk. The company has in place a risk management framework to monitor and manage its risks on an ongoing basis The main risk that the company bears is financial market risk, primarily due to the guarantees on its participating, UWP and variable annuity business. In particular, the company is exposed to the risk of asset values falling below liabilities in respect of guaranteed benefits, which could happen if there is a fall in the market value of equities, property or bonds In all cases, however, there are risk mitigants in place: the participating funds have surplus assets to provide a cushion against falls in asset values for the participating business; both the UWP business and the variable annuity business are reinsured with well-rated reinsurers within the Great-West group of companies At 31 December 2012, the investment portfolio (other than linked assets) of Canada Life Ireland was primarily invested in bonds. Just over 50% of the bond portfolio was invested in sovereign or supranational bonds, with the remainder invested in corporate bonds. Canada Life Ireland s portfolio of sovereign bonds is well-rated and well-diversified, with German bonds accounting for roughly one-third of the total, and French and Dutch bonds accounting for a further 45% between them (all figures as at 31 December 2012). The company does have some exposure to peripheral Eurozone bonds which are higher- yielding and therefore considered to be more exposed to the risk of default, but the company has already and continues to reduce this exposure. In relation to its corporate bond investments, all such bonds are rated BBB or higher and the portfolio is well diversified Canada Life Ireland is also exposed to the risk that one or more of its counterparties may default on its obligations to the company. This risk primarily relates to the company s bond investments (which have been summarised above) and to the company s exposure to its reinsurers Canada Life Ireland uses reinsurance extensively to improve capital efficiency, to protect against adverse risk claims experience, to limit its exposure to investment-related guarantees and to support new business financing. The mathematical reserves at 31 December 2012 were net of a d108 million offset in respect of reinsurance ceded. In addition to the reinsurance of the financial market risks on UWP and variable annuity business referred to above, the company also makes extensive use of reinsurance in respect of its non-participating protection business, primarily reinsuring to well-rated specialist reinsurers outside the Great-West group of companies. The level of counterparty risk arising from these reinsurance arrangements is regularly monitored, as are the credit ratings of the reinsurers to which the company is exposed. Additionally, the variable annuity reinsurance arrangement includes a provision whereby the reinsurer will be obliged to post collateral in respect of its obligations to Canada Life Ireland once the exposure exceeds a specified threshold The company also makes use of financial reinsurance. It has an arrangement in place with three companies within the Great-West group of companies under which the company received an advance of future surpluses (profits) expected to arise on specified cohorts of business, with the agreement that this advance would be repaid with interest based on the actual surplus arising. In essence the company has borrowed against the collateral of the surplus expected to arise on these cohorts of business in the future. However it is important to note that the repayment of the advance is contingent on future surpluses emerging. This arrangement does not lead to counterparty risk for Canada Life Ireland In terms of insurance risks, Canada Life Ireland is exposed to persistency risk, longevity risk and mortality and morbidity risks. Poor business persistency (i.e. more policyholders lapsing or surrendering their policies) would result in a loss of future surpluses. In particular a once-off mass lapse event would have a significant impact. The company monitors its persistency experience on a quarterly basis. The company is exposed to longevity risk on its annuity portfolio. The company monitors its longevity experience on a regular basis and establishes mathematical reserves in respect of its annuity liabilities using prudent longevity assumptions. The company is also exposed to mortality and morbidity risk in respect of its term assurance and unit-linked protection business. This risk is mitigated through the substantial use of reinsurance. 12

13 2.21 As is the case for all insurance companies, Canada Life Ireland is exposed to a range of other risks such as business risks, operational risk, regulatory compliance risk and fiscal risk. The company s Chief Risk Officer monitors and reports on these risks in a quarterly report to the Risk and Compliance committee, the Chairman of which reports to the Board of Directors. Solvency position 2.22 I have considered Canada Life Ireland s statutory financial position, based on its most recent Annual Returns to the Central Bank. As at 31 December 2012, Canada Life Ireland comfortably covered its regulatory capital requirements, with available assets of r153.3 million and a required minimum solvency margin of r50.2 million, resulting in a solvency coverage ratio of 306%. The coverage level was above the target range of 150% to 200% set out in Canada Life Ireland s capital management policy and was above the Central Bank s minimum requirement of 150% coverage As noted above, the company s long-term insurance fund is subdivided into three Sub-Funds: the Non-Par, Closed Par and Open Par Sub-Funds. Looking at these individually, but noting that the aggregate position is the main determinant of benefit security, because the boundaries between Sub-Funds may break down if one or more Sub-Funds has a deficit, the position may be summarised as follows (all figures as at 31 December 2012): The combined assets of the Non-Par Sub-Fund and the Shareholder Fund exceeded their liabilities by r million. The required minimum solvency margin for the Non-Par Sub-Fund amounted to r million, which meant that the available assets in excess of the minimum solvency margin requirement came to r million a solvency margin coverage ratio of 218%. The assets of the Closed Par Sub-Fund exceeded its liabilities by r million. The required minimum solvency margin for the Closed Par Sub-Fund amounted to r3.667 million, which meant that the available assets in excess of the minimum solvency margin requirement came to r million a solvency margin coverage ratio of 1363%. The assets of the Open Par Sub-Fund exceeded its liabilities by r5.184 million. The required minimum solvency margin for the Open Sub-Fund amounted to r1.472 million, which meant that the available assets in excess of the minimum solvency margin requirement came to r3.712 million a solvency margin coverage ratio of 352% The solvency coverage ratio for the Par Sub-Funds is currently significantly higher than for the Non-Par Sub-Fund, which reflects the fact that under the current Irish insurance regulations, the company is not required to make allowance for future terminal bonuses when evaluating its liabilities to policyholders. Therefore, available assets are increased to the extent that the Par Sub-Funds have the capacity to pay terminal bonuses in the future. However, these assets are not available to the shareholder (except for a small percentage of the bonus allocated to the shareholder in respect of the Open Par Sub-Fund), and can only be used to increase payouts to participating policyholders or meet adverse experience in the Par Sub-Funds A new European-wide regulatory regime ( Solvency II ) is expected to come into effect in the coming years which will (amongst other things) change the way in which insurance companies report their financial position. Canada Life Ireland has prepared figures as at 31 December 2011 on a Solvency II basis (note that Solvency II figures as at 31 December 2012 are not available). As the Solvency II rules have not yet been finalised, the figures were calculated on the basis of certain assumptions in relation to those areas where the Solvency II guidance is not yet sufficiently detailed or developed. Furthermore, the models used for the Solvency II calculations were still under development so a number of approximations were used in producing the results. Subject to those caveats, the investigation undertaken as at 31 December 2011 showed that the position on a Solvency II basis was reasonably similar to that reported on the current basis the company would have had an excess of available assets over its capital requirements of some r89 million compared to the r86 million it reported under the current rules In addition to looking at the recently-reported level of solvency coverage, it is important to consider how the company s financial and solvency position might develop over the medium term. In this regard, I have been provided with a set of financial projections for Canada Life Ireland (produced in May 2013 with a 31 December 2012 starting point). These projections examine the position on the basis that Canada Life Ireland continues as a standalone entity (i.e. looking that the position that would apply if the proposed Scheme did not proceed) but that the following actions are taken: 13

14 Canada Life Ireland closes to new business by August 2013; Canada Life Ireland s direct sales channel and broker consultants transfer to Irish Life; and, Canada Life Ireland s policies migrate to Irish Life s existing administration systems These projections show that the solvency position of the company is projected to be resilient in a range of potentially adverse scenarios. Projected solvency cover remained above 240% over a five year time horizon in all scenarios tested, including one particularly extreme scenario which examined the impact of a fall in equity and property prices combined with higher lapse rates and worsening morbidity experience. Policyholders reasonable expectations 2.28 The concept of policyholders reasonable expectations ( PRE ) is not set out in law but actuarial guidance and practice has attempted to bring a consistency of approach to this concept The Society of Actuaries in Ireland has stated the need to consider PRE when assessing a proposed transfer of business from one life assurance company to another and has also set out its ongoing requirements for Appointed Actuaries in relation to PRE. I have taken those requirements into account in considering PRE in my assessment of the proposed Scheme The Appointed Actuary of Canada Life Ireland has, as required by actuarial professional guidance, set out in her report to the Board of Directors of Canada Life Ireland her interpretation of PRE and how it is exercised for policyholders. I have reviewed the relevant sections of that report and I have no issues to note I have also reviewed the report on the 2013 dividend proposal for participating business; a report prepared by the Appointed Actuary setting out the bonus recommendation for UWP business for the year commencing 1 April 2013; and, a communication issued in 2012 to all policyholders invested in the UWP fund. 3 IRISH LIFE History and background 3.1 Irish Life is Ireland s largest life assurance company. The Irish Life Group employs approximately 2,000 people and services approximately one million customers. The Irish Life brand is one of the best known and most recognised financial brands in Ireland. 3.2 Irish Life was originally incorporated in The business grew and developed over the following decades and, in July 1991, Irish Life plc was floated on the Dublin and London Stock Exchanges. In April 1999, Irish Life plc merged with Irish Permanent plc to form Irish Life & Permanent plc. 3.3 In June 2011, it was determined that Irish Life & Permanent would dispose of Irish Life Group Limited, the parent company of Irish Life, as a non-core asset of the banking business operated by Irish Life & Permanent. To this end, Irish Life passed into State ownership in On 19 February 2013, it was announced that Great-West had agreed with the Minister for Finance to acquire Irish Life Group Limited, and that it was intended that Great-West would combine its Canada Life Ireland business with Irish Life under the Irish Life brand. 3.5 The acquisition by Great-West Life of Irish Life Group Limited was completed on 18 July Since that date, Canada Life Ireland and Irish Life have been in common ownership. Nature of business written 3.6 As at 31 December 2012 Irish Life had approximately 718,000 policies in force, comprising 375,000 non-linked policies and 343,000 linked policies, excluding group pensions. Total mathematical reserves (net of reinsurance) amounted to f26.9 billion at that date, of which some f24.6 billion represented liabilities to policyholders in respect of linked business. 3.7 The life assurance business of Irish Life consists wholly of non-participating policies. The business is mostly linked business. Some linked business has guarantees or capital protection provided either by Irish Life or third parties, but the vast majority has no such guarantees, with the policyholders bearing the risk of any falls in the value of the linked assets. 3.8 The non-linked business includes annuities, income protection, and term assurances. 14

15 Structure 3.9 Irish Life operates through two main divisions, Irish Life Retail (focused on individual life assurance and pensions) and Irish Life Corporate Business (focused on life assurance and pension products for employers and affinity groups). These are not separate legal entities, however: all business is written in the single long-term business fund of Irish Life (the Continuing Fund ). The Irish Life Shareholder Fund is entitled to the entire surplus arising on this business. Risk profile 3.10 As is the case with Canada Life Ireland, the range of risks to which Irish Life is exposed includes financial market risk, counterparty default/credit risk, insurance risk, business/operational risk, regulatory compliance risk and fiscal risk. The company has in place a risk management framework to monitor and manage its risk on an ongoing basis The main risk that the company bears is financial market risk. However, of the company s total mathematical reserves of f26.9 billion (net of reinsurance) at 31 December 2012, some f22.9 billion (85%) was in respect of non-guaranteed unit-linked business. The financial market risks on this business are borne by the policyholders in question rather than by Irish Life, although Irish Life would suffer a reduction in future surpluses if fund values reduce due to market movements (or for any other reason) The company is directly exposed to market risk in relation to its shareholder assets, assets backing non-linked policyholder liabilities and assets backing linked business where Irish Life provides an investment guarantee. In relation to the third of these categories, Irish Life provides investment guarantees to its policyholders in respect of certain linked funds, such as the Secured Performance Fund ( SPF ). Reductions in interest rates and/or falls in stock markets would increase the cost of these guarantees to Irish Life. These risks are partially mitigated by Irish Life by hedging part of its exposure and the company sets aside mathematical reserves which have been calculated on a prudent basis which includes allowance for the possibility of adverse interest rate and stock market movements. The total value of linked funds with investment guarantees was approximately f1 billion as at 31 December 2012 (there was also a further f0.7 billion invested in linked funds where Irish Life has provided a credit risk guarantee). The total mathematical reserve held at 31 December 2012 for investment guarantees and other financial options was f149m, of which f98m related to the SPF Approximately f100 million of assets backing the guaranteed portion of policyholders benefits under so-called tracker bonds are invested in deposits with Irish credit institutions. These are covered by the Irish Government s Eligible Liabilities Guarantee Scheme As at 31 December 2012, Irish Life s bond investments were valued at f2.4 billion (excluding bond investments held within linked funds for the benefit of policyholders). The majority of these investments were in well-rated sovereign bonds. There were some holdings of Irish and Italian government bonds and Irish bank bonds but, in aggregate, these accounted for less than 20% of the total. It is also worth noting that the company has a concentration risk in relation to its holdings of French sovereign bonds as at 31 December some 45% of its total bond investment portfolio was invested in French sovereign bonds As at 31 December 2012, Irish Life had counterparty exposure in relation to cash holdings of f1,076 million. These cash holdings were with a diversified range of strongly-rated banks. The holdings were spread across 24 banks with no single bank accounting for more than 12.5% of the total. All banks had at least an A credit rating (taking the median rating from three major credit ratings agencies) In addition to the risk of falls in asset values, Irish Life is also exposed to liquidity risk in relation to its property holdings. The company has a policy of ensuring that its available assets include sufficient liquid assets to cover 100% of its required minimum solvency margin requirement (which amounted to f415.9 million at 31 December 2012) Irish Life is also exposed to the risk that one or more of its counterparties may default on its obligations to the company. This risk primarily relates to the company s bond investments and bank deposits (which have been summarised above) and to the company s exposure to its reinsurers Irish Life uses reinsurance to improve capital efficiency, to protect against adverse risk claims experience, and to support new business financing. The mathematical reserves at 31 15

16 December 2012 were net of a f2.6 billion offset in respect of reinsurance ceded. There are a number of reinsurance arrangements in place, the most significant of which are with Alterra Bermuda Limited and XL Re Limited in respect of certain annuity liabilities. Counterparty default risk exposure arising from these arrangements is reduced through the use of collateral and charged accounts: of the total f2.6 billion offset to mathematical reserves as at 31 December 2012, f1.5 billion of this reduction is due to annuity reinsurance for which the backing assets are held in charged collateral accounts. The company has also entered into a reinsurance arrangement with Hannover Rück SE which is structured as a longevity swap and is fully collateralised. The remaining risk reinsurance arrangements relate mainly to life and disability risks, the overall impact of which was to reduce the company s liabilities by approximately f0.8 billion at 31 December These arrangements are not collateralised but the underlying economic exposure to the reinsurers in question is relatively small (maximum of f22 million in respect of any one reinsurer), so that if a reinsurer were to become unable to pay its claims, Irish Life should be in a position to source replacement cover from another reinsurer without any material additional premium payment. Finally, it should be noted that all of Irish Life s reinsurers are strongly rated (minimum rating of A as at 31 December 2012) Irish Life also makes use of financial reinsurance, having an arrangement in place with the UK Branch of Swiss Re Europe S.A. ( Swiss Re ). In summary this reinsurance arrangement reduces the mathematical reserves required to be held by Irish Life (and hence boosts the company s solvency coverage ratio) but reduces future statutory surpluses since these future surpluses are used to reduce the balance on the facility. Irish Life expects that the future surpluses will be sufficient to repay the balance outstanding and therefore Irish Life does not have an economic credit risk exposure to Swiss Re. The reinsurance arrangement can be cancelled when Solvency II is implemented (as the rationale for the arrangement will no longer exist under Solvency II) In terms of insurance risks, Irish Life is exposed to similar risks to those outlined previously for Canada Life Ireland (persistency risk, longevity risk and mortality and morbidity risks). Irish Life s approach to monitoring and mitigating those risks is similar to Canada Life Ireland s As is the case for Canada Life Ireland, Irish Life is exposed to a range of other risks such as business risks, operational risk, regulatory compliance risk and fiscal risk. Again, Irish Life operates risk monitoring and risk mitigation processes for those risks similar to those operated by Canada Life Ireland. Solvency position 3.22 I have considered Irish Life s statutory financial position, based on its most recent Annual Returns to the Central Bank. As at 31 December 2012, Irish Life comfortably covered its regulatory capital requirements, with available assets of f782.6 million and a required minimum solvency margin of f415.9 million, resulting in a solvency coverage ratio of 188%. The coverage level was above the target range of 175% set out in Irish Life s capital management policy and was above the Central Bank s minimum requirement of 150% coverage In relation to Solvency II, Irish Life has prepared figures on a Solvency II basis for internal purposes for a number of years, most recently as at 31 December Noting the same caveats as set out earlier in the discussion of Canada Life Ireland s corresponding calculations, the investigation undertaken as at 31 December 2011 showed that the company s excess assets (i.e. the available assets in excess of the company s capital requirement) would have ranged from f436 million to f653 million depending on the precise form of the Solvency II technical specifications. This compares with a reported level of excess assets of f302 million under the current rules The advent of Solvency II should, therefore, be beneficial for Irish Life in terms of its reported level of solvency cover. It is important to remember, however, that the underlying risks inherent in an insurance company s business remain the same whether it calculates and reports its solvency position on a Solvency I or on a Solvency II basis. Solvency II should, however, result in a better alignment between companies reported solvency coverage positions and their true risk profiles than is the case under the current Solvency I system Turning to the company s projected future financial and solvency position, I have been provided with a set of financial projections for Irish Life (produced in May 2013 with a 31 December 2012 starting point). These projections examine the position on the basis that Irish Life continues as a standalone entity (i.e. looking at the position that would apply if the proposed Scheme did not proceed) but with allowance for the additional sales and related costs expected 16

17 to arise from the operational changes resulting from the company s acquisition by Great-West The central projections show that substantial surpluses are expected to emerge over , and that solvency coverage is projected to remain at the target level of 175% after significant dividend payments. The projections also show that Irish Life is resilient to a range of adverse scenarios: whilst solvency cover could drop below 175% in adverse conditions, solvency cover would not fall below 150% except under very extreme adverse scenarios (and would very quickly recover to the 175% level as emerging surpluses were retained in the business with no dividends being taken). Policyholders reasonable expectations 3.27 The concept of policyholders reasonable expectations ( PRE ) has been described in paragraph As noted, there is no statutory regulation in relation to PRE but actuarial professional guidance requires me to consider PRE in my assessment of the proposed Scheme The Appointed Actuary of Irish Life has, as required by actuarial professional guidance, set out in her most recent annual report to the Board of Directors of Irish Life her interpretation of PRE and how it is exercised for policyholders. I have reviewed the relevant sections of that report and I have no issues to note. 4 ASSESSMENT OF PROPOSED SCHEME Introduction 4.1 I set out below my assessment of the proposed Scheme. My assessment is conducted within the context of the proposed Scheme, and only the proposed Scheme, and considers its likely effects on the transferring policyholders of Canada Life Ireland and the existing policyholders of Irish Life. It is not within my remit to consider possible alternative schemes or to form a view as to whether this is the best possible scheme. General considerations when reviewing the proposed scheme 4.2 When considering the proposed Scheme I have had regard to the equity of the proposals amongst the two Companies policyholders, the security of the benefits in each company both before and after the implementation of the proposed Scheme, and the policyholders reasonable expectations created by the past practices employed or statements made by each company. In respect of each of these factors, I have compared the position which will apply after the completion of the proposed transfer with the position which would apply if the proposed transfer did not take place. 4.3 In summary, the conditions to be met by the proposed Scheme are: that the security of policyholders benefits will not be materially adversely affected; and, that the proposed Scheme treats policyholders fairly and will not materially adversely affect their reasonable benefit expectations. IMPACT ON SECURITY OF POLICYHOLDERS BENEFITS 4.4 The security of policyholders benefits is provided by the amount by which an insurance company s assets exceed its liabilities (subject to adjustment for any margins for prudence which are inherent in either or both the valuation of its assets and its liabilities). In addition, the regulatory regime requires that this excess of assets over liabilities must in turn exceed a prescribed minimum level, thus providing a minimum level of security. 4.5 The principal issue with regard to security of benefits therefore is whether or not Irish Life will have adequate resources following the completion of the proposed Scheme and whether this is likely to remain the case over time. This assessment must also consider the situation which would apply if the proposed Scheme did not go ahead. 4.6 As previously noted, a new European-wide regulatory regime known as Solvency II is expected to come into effect in the coming years which will (amongst other things) change the way in which insurance companies report their financial position. I have therefore examined the question of benefit security on the basis of both the existing regime and the planned future regime. It is important to note, however, that the final requirements of Solvency II have not yet been fully determined and it is therefore impossible to establish precisely what the financial impact on each of the companies will be, either individually or in the context of the proposed Scheme. 17

18 FAIR TREATMENT OF POLICYHOLDERS AND IMPACT ON POLICYHOLDERS REASONABLE BENEFIT EXPECTATIONS 4.7 As the Independent Actuary, I must also consider whether the proposed Scheme treats policyholders fairly and examine the effect of the proposed Scheme on policyholders reasonable benefit expectations. This involves consideration of those aspects where discretion is required to be exercised by the Companies in relation to the fulfilment of their contracts with their policyholders. 4.8 Such areas of discretionary powers may include: the ability to vary bonus rates on participating business; the ability to vary the level of non-guaranteed charges; the ability to vary premiums on policies with reviewable premiums; and, the approach to calculating prices of internal linked funds, amongst others. Assessment of the proposed Scheme 4.9 In the following paragraphs I assess the proposed Scheme in the context of security of policyholders benefits, fair treatment and policyholders reasonable benefit expectations. In addition, I have considered the impact of other miscellaneous aspects of the proposed Scheme as set out in the following paragraphs. I do not believe that there are any other matters that I have not taken into account that might be relevant to my assessment of the proposed Scheme I consider the implications of the proposed Scheme separately for the following groups of policyholders: Policyholders transferring from the Canada Life Ireland Non-Par Sub-Fund; Policyholders transferring from the Canada Life Ireland Closed Par Sub-Fund; Policyholders transferring from the Canada Life Ireland Open Par Sub-Fund; and, Existing (pre-transfer) policyholders of Irish Life. Security of policyholders benefits 4.11 In assessing the implications of the proposed Scheme on the security of benefits for the various groups of policyholders, I have considered a number of factors including, the solvency position pre and post- transfer (using the position as at 31 December 2012 as a proxy for the position as at the proposed transfer date), the risk profiles of the two companies and the outlook for the future solvency development of the two companies. POSITION AS AT 31 DECEMBER 2012 (CURRENT REGULATORY BASIS) 4.12 When examining the solvency position as at 31 December 2012, I have focused primarily on the position as reported to the Central Bank under the current ( Solvency I ) regulatory regime. I have, however, also considered the position under the proposed future ( Solvency II ) regime Table 1 sets out the respective solvency positions (on the basis of the current regulatory regime) of both companies as at 31 December 2012, together with the pro-forma combined solvency position if the proposed transfer had taken place at that date. Table 1: Canada Life Ireland & Irish Life Respective & pro-forma combined solvency positions as at 31 Dec Total Company Canada Life Ireland 31 Dec 2012 EUR 000 Irish Life 31 Dec 2012 EUR 000 Combined 31 Dec 2012 EUR 000 (1) Assets 3,652,634 28,557,570 32,206,204 (2) Mathematical reserves and other liabilities 3,499,345 27,774,937 31,252,176 (3) Assets available to cover RMSM (=(1) - (2) ) 153, , ,028 (4) Required minimum solvency margin ( RMSM ) 50, , ,768 (5) RMSM coverage ratio ( = (3) / (4)) 306% 188% 205% (6) Excess of available assets over RMSM (=(3) - (4)) 103, , ,260 Source: Annual Returns to the Central Bank (Canada Life Ireland and Irish Life) and author s calculations. 18

19 4.14 Table 1 has been prepared on the assumption that all assets and liabilities of Canada Life Ireland are transferred to Irish Life apart from e4.0 million which remains in the Canada Life Ireland Shareholder Fund. It also allows for the impact of the proposed transfer on the combined liabilities and combined RMSM (neither of which are simply the sum of the individual companies figures) Overall then, when considered at the total company level, the position, if the transfer had taken place as at 31 December 2012, is that Canada Life Ireland s transferring policyholders would have seen a reduction in their aggregate solvency coverage ratio from 306% to 205% whereas Irish Life s policyholders would have seen an increase in their coverage ratio from 188% to 205% There are, however, a number of points that need to be borne in mind in relation to the reduction in the solvency coverage ratio for transferring Canada Life Ireland policyholders. Firstly, as Irish Life is a much larger entity than Canada Life Ireland, focusing solely on the coverage ratios does not necessarily convey the full picture: as I stated in paragraph 4.5 above, the absolute amounts of excess assets are also relevant. As can be seen from Table 1, had the transfer taken place on 31 December 2012, the transferring Canada Life Ireland policies would have moved from a company with e103.1 million in excess assets to one with e489.3 million. Secondly, it should be noted that, although the overall solvency coverage ratio for Canada Life Ireland was 306% at 31 December 2012, this was due to the fact that the Par Sub- Funds have a far higher solvency coverage ratio (1363% and 352% for the Closed and Open Sub-Funds respectively) than the Non-Par Sub-Fund (218%). Canada Life Ireland s policy has been (and, in the absence of the proposed Scheme, would continue to be) to maintain a solvency coverage ratio in the 150% to 200% range (looking at the Non-Par Fund in isolation). As previously noted, the recent practice has been to maintain coverage at the top end of this range. There is, however, no guarantee that, if the proposed Scheme were not implemented, Canada Life Ireland would continue to maintain coverage at or above the 200% level the level of solvency coverage could be reduced somewhat. POSITION AS AT 31 DECEMBER 2012 (SOLVENCY II BASIS) 4.17 As noted in paragraph 2.25, the regulatory regime is expected to change from the current Solvency I regime to a proposed Solvency II regime in the coming years. Solvency II will change the way in which insurance companies value their assets and liabilities and how they calculate their solvency capital requirements Had Solvency II been in place at 31 December 2012, the figures set out in Table 12 would have been quite different. I have been advised by the two companies that equivalent figures on a Solvency II basis as at 31 December 2012 are not available, but I have been provided with figures for both companies on a Solvency II basis as at 31 December An examination of those figures allows me to conclude that, under Solvency II the level of available assets may be expected to increase for both companies (very significantly so in the case of Irish Life) and that, although the capital requirements for both companies will also increase, the overall net impact should be an increase in the level of available assets in excess of the capital requirements. The transition to Solvency II should, therefore, show higher levels of solvency coverage for the combined entity post-transfer It must be remembered, however, that the move to Solvency II will merely change the reported solvency position the underlying characteristics and riskiness of the business will remain unchanged (although the clearer link under Solvency II between a company s risk profile and its solvency capital requirements may lead to companies taking further risk mitigation actions) The transition to Solvency II will, however, bring the possibility of a significant once-off distribution of surplus to the shareholder. This could have the potential to reduce the security of policyholders benefits but it should be borne in mind that the company will have to retain sufficient capital to cover its Solvency II capital requirements ( SCR ). The SCR is intended to represent the level of capital the company would require to allow it to withstand an adverse scenario at the once-in-200-years level. In summary, therefore, I do not consider that the move to the Solvency II regime will lead to a material loss of security for either Canada Life Ireland s or Irish Life s policyholders. PROJECTED CHANGES TO THE FINANCIAL POSITION 4.21 The above analysis of the point-in-time solvency position for both companies at end-2012 must, in my view, be supplemented by a forward-looking analysis of future changes in solvency cover, 19

20 particularly as future changes in solvency cover from one year-end to the next are likely to be quite different for Canada Life Ireland and Irish Life In terms of developments to date since 31 December 2012, both Canada Life Ireland and Irish Life have continued to trade normally and, based on Returns made to the Central Bank in respect of the quarter ended 31 March 2013, there have been no material changes to either company s solvency position I have been provided with medium-term financial projections for the two Companies individually as well as a set of projections for the two Companies combined. These indicate that the combined business is projected to have substantial capacity for dividend payments whilst still maintaining its target solvency coverage ratio of 175% for the Non-Par Sub-Fund / Continuing Fund, and that the combined business is resilient to a range of adverse scenarios. In particular, whilst the solvency coverage ratio could drop below 175% in adverse conditions, solvency cover would not fall below 150% except under very extreme adverse scenarios (and would very quickly recover to the 175% level as emerging surpluses were retained in the business with no dividends being taken) Irish Life s solvency ratio at 31 December 2012 was above the company s target level of 175%. The company has, historically, had a target solvency ratio of 175% and will, I understand, continue to target a solvency coverage ratio of 175% for the Non-Par Sub-Fund / Continuing Fund following the proposed transfer. The overall company-level solvency coverage ratio can, therefore, be expected to fall to closer to 175% over a relatively short period of time in line with Irish Life s stated policy. RISK PROFILE 4.25 The risk profiles of Canada Life Ireland and Irish Life have been summarised in section 2 and section 3 respectively. In my view, the two companies exhibit broadly similar risk profiles both companies have books of predominantly non-guaranteed linked business; both companies have made extensive use of reinsurance as a risk mitigation tool as well as for the purposes of alleviating the financial strain associated with writing new policies; both companies are exposed to similar risks (market/financial risk, insurance risks, operational risks etc.) The introduction of participating business to Irish Life brings the risk that the shareholder may be called upon to provide support to the Par Sub-Funds (thus weakening the security of the non-participating policyholders) in the event that the resources of the Par Sub-Funds prove insufficient to meet guaranteed benefits. However, given the current healthy solvency position of the Par Sub-Funds and the relatively conservative approach to the investment of the assets of those Sub-Funds, the likelihood that this would have a material effect on the security of benefits for Non-Par policyholders is low Canada Life has also written UWP and variable annuity business, neither of which has been written to date by Irish Life. Irish Life has, however, written somewhat similar business in its Secured Performance Fund (and other similar funds). Consequently the addition of the UWP and variable annuity business (which are both substantially reinsured in any case) would not, in my view, materially alter Irish Life s risk exposure In terms of risks that are present in the Irish Life business that are not present, or are at a much lower level in the Canada Life Ireland business, the main points to note are that Irish Life has a higher exposure to property and other illiquid assets than Canada Life Ireland (but this exposure is monitored and restricted) and that Irish Life has considerable exposure to the French and Irish sovereigns In summary, I conclude that the risk profiles of the two companies are similar and that the proposed Scheme will not, therefore, materially change the risks to which the various groups of policyholders are currently exposed. CONSIDERATION OF DIFFERENT GROUPS OF POLICYHOLDERS 4.30 In the following paragraphs, I set out my views on the impact of the proposed Scheme on the security of benefits of the various groups of policyholders, noting, however, that the aggregate position is the main determinant of benefit security, because the boundaries between Sub-Funds may break down if one or more Sub-Funds has a deficit. Policyholders transferring from the Canada Life Ireland Non-Par Sub Fund 4.31 Looking at the position as at 31 December 2012, the transferring Non-Par policyholders would have moved from a position of 218% solvency margin coverage to 196% coverage, when 20