Securities Commission - Discussion on Life Insurance and Law Practices

PART II - LIFE INDUSTRY LAW AND PRACTICES

Main Contents
Glossary
Part I - Background
Part II - Life Industry Law and Practices
Part III - Public Policy Discussion
Appendices

THE IMPLICATIONS FOR POLICYHOLDERS OF CHANGES OF COMPANY OR PORTFOLIO OWNERSHIP

Our experience of New Zealand life industry practice
Changes of ownership of life insurance companies and policies inAustralia and the United Kingdom
Comment

Our experience of New Zealand life industry practice

7.1
Over recent years there have been a number of instances in New Zealand where ownership, or effective ownership, of a portfolio of life insurance contracts has changed. Such changes have been effected in a number of different ways with a range of direct and indirect consequences for policyholders.

Acquisition by reinsurance

7.2 A fairly common technique for changing the risks and rewards of an insurance portfolio, without actually changing the legal ownership of the portfolio, is through use of reinsurance. In this method the acquiring company assumes all the risk under a portfolio of policies without any change of obligor. The selling company pays the reinsurer (acquirer) a reinsurance premium by transferring an appropriate amount of the seller's assets to the acquirer. The selling company remains legally liable under each contract but the acquirer takes all or a major part of that risk, and the associated reward, under a reinsurance contract.

7.3 The policyholders' contractual arrangements are undisturbed. Their consent to the reinsurance arrangement is not required even though the strength of their future claims may rest rather more on the viability and business philosophy of the acquiring company than on that of the selling company. Provided the bonus determination processes are not changed by the acquiring company there may be no change in participating policyholders' benefit expectations. However the policyholder's security cover may be improved or worsened depending on the capital position of the company assuming the risks under the reinsurance contract compared with that of the company ceding those risks.

Acquisition by takeover

7.4
We have also observed a few instances in recent years of change of ownership of New Zealand life insurance companies, and thus of their life insurance portfolio of business, effected by acquisition or takeover.

7.5
In such cases the equity participants would be subject to the normal rules of law concerning changes of company ownership. For example:

The provisions of the Companies Amendment Act 1963 may apply if the offer is made in writing, is made to more than six members of the target company, and the target company has more than 25 shareholders;

If a listed company is involved compliance with the Listing Rules of the New Zealand Stock Exchange may be required;

If an overseas owned company is involved the consent of the Overseas Investment Commission may be required;

Depending on the size of the transaction the provisions of the 1993 Companies Act concerning "major transactions" may have to be followed³⁸ . Note, however, that the company's policyholders (as creditors) have no standing in the shareholders' consideration of major transactions;

If the target company was providing financial assistance for the purchase of its own shares (or those of its holding company) the transaction may be subject to the "financial assistance" provisions of the 1993 Companies Act³⁹ .

7.6
There are no special provisions of the Life Act, the Companies Act, the Securities Act or any other New Zealand legislation applying to life insurance companies, whether as target companies or acquiring companies. There is, for example, no requirement that policyholders should be consulted, or their consent obtained, before an acquisition or sale transaction can proceed. There is also no specific requirement that the directors of either an acquiring or of a selling company obtain independent actuarial advice on the effect of any prospective takeover transaction on the policyholders of either company before the transaction is proceeded with.

7.7
With respect to the interests of the policyholders of an acquired life insurance company:

Under the Companies Act an acquiring life insurance company may use the assets of an acquired life insurance company to assist the purchase of that company's shares. The directors of the acquired company can assent to various of the resolutions required under the "financial assistance" provisions of the Companies Act provided the requirements of that Act are met, including the requirement to satisfy the solvency test⁴⁰ ;

Where the giving of financial assistance is assented to under the "unanimous consent" provisions (sections 107/108) of the Companies Act, as could occur when a life company becomes a wholly owned subsidiary of another company, there is no requirement (unlike under section 76) for the directors of the acquired company to resolve either that the giving of the financial assistance is in the best interests of the (acquired) company giving the assistance or that the terms and conditions under which the assistance is given are fair and reasonable to the company. However, the requirements for satisfaction of the solvency test are more rigorous under the "unanimous consent" provisions than under the more general provisions⁴¹;

The policyholders of the acquired company are, nevertheless, creditors of that company and are owed duties as creditors⁴² by the directors of the acquired company (although in many cases the companies have considerable discretion to determine the amounts owed to them as creditors).

7.8
With respect to the interests of the policyholders of an acquiring life insurance company the provisions of existing law appear to mean that such a company is generally free to use its own assets, or indeed the assets of a wholly owned subsidiary, either directly or as security to support borrowings used to finance the purchase of another company, including a life company. Where any such acquisition is made it needs to be questioned whether that acquisition is for the purposes of the "life insurance business" of the acquiring company and if there should be a separation of the life insurance policyholders' funds as provided for in section 15 of the Life Act.

7.9
Examples in the area include where one life insurance company acquired another life insurance company and:

the acquisition was partly funded by bank finance, with the assets of the acquiring company pledged to the bank, with the bank having a charge over the assets of the acquiring company which ranked in priority to the claims of the policyholders. All the acquiring company's policies were non-participating i.e. the policyholders were not entitled to share in the company's profits;

the acquired life insurance company gave extensive financial assistance⁴³for the purchase of its parent's and thus its own shares. This financial assistance included:

a long term advance, representing around 10% of the acquired company's total assets, given to the acquiring company's parent and secured by the assignment of a second mortgage security over certain offshore assets which had been sold by the acquired company to its parent as part of the transaction;

the distribution, to the acquiring company, post acquisition, of more than half of the acquired company's pre-acquisition shareholders' funds;

the pledging of the rights to ownership of the acquired company's life insurance portfolio to a group of reinsurance companies as security for an advance to the acquiring company against future profits arising from that portfolio.

7.10 With respect to any consultation with policyholders we observed that in various instances, including that outlined in the preceding paragraph, the directors of the acquiring company did not seek the views of the policyholders or of any representative on the proposed acquisition.

Instances of changes of obligor

7.11 There were two recent instances where the New Zealand branches of United Kingdom life insurance companies were "domesticated", with the policyholders of the New Zealand branches of the United Kingdom companies becoming policyholders of New Zealand subsidiaries of those companies. These changes were effected through court approved Schemes of Arrangement under section 205 of the Companies Act 1955.

7.12 In both cases the companies requesting court approval to the transfers obtained independent actuarial advice, which was made available to the policyholders and the court, as to the fairness of the arrangements to the policyholders and the effect they would have on the financial security and future prospects of those policyholders.

7.13 These cases involved a change in the entity liable under the life insurance policies from a global United Kingdom-based company to a New Zealand incorporated company. These were arguably rather more fundamental changes to the position of policyholders than would occur with the takeover of one New Zealand life insurance company by another, because of the change in obligor.

7.14 One of the insurance groups involved in the domestication process sought to preserve for its New Zealand policyholders some of the regulatory benefits they were giving up by becoming members of a New Zealand incorporated life company. They achieved this by use of a "Policyholders Protection Guidance Note" which was protected by a Deed of Covenant.

7.15
The Independent Actuary, in an affidavit filed in the Court in support of the application for domestication by the company, said:

4.2 The disadvantages [of domestication] are:

a perceived loss of policyholder security through the loss of membership of the world wide life fund.

a perceived loss of future earnings caused by the narrower range of investments available in New Zealand.

loss of United Kingdom legislative controls including:
The fit and proper person legislation which controls senior management and directors,
Appointed Actuary regime,
Controls on the transfer of surplus to shareholders,
Department of Trade and Industry reporting and other public reporting requirements,
European Community Solvency Standards,
Transactions between shareholders and policyholders should be no less than fair and equitable.

change in the Articles of Association under which shareholders share in the surplus

lack of any New Zealand bonus distribution protection for policyholders.

7.16 The Policyholders' Protection Guidance Note was designed to address these issues by prescribing the allocation of profits between participating policyholders and shareholders, by obliging the directors of the company to take actuarial advice on a range of matters, and, through the covering Deed of Covenant, to require that the company obtain policyholder approval for any change in profit distribution policy in favour of the shareholders. The Note could only be varied at the request of the directors of the company after taking the advice of the company's actuary and of an independent actuary. The distribution policy in favour of shareholders could not be improved without the approval of 75% of the policyholders.

Changes of ownership of life insurance companies and policies in Australia and the United Kingdom

7.17 Australia has legislative controls relating to changes of ownership of life insurance business, changes in the risks and rewards under life insurance contracts effected through reinsurance and takeovers or acquisitions of insurance (including life) companies.

7.18 Part 9 of the LIA (Aust) covers "Transfers and Amalgamations of Life Insurance Business". This Part (section 189 onwards) provides that no part of the life insurance business of a life insurance company can be transferred to, or amalgamated with the business of, another life insurance company without the approval of the Court⁴⁴. A copy of the scheme of transfer or amalgamation, and any actuarial report thereon, must be provided to the Commissioner. Appropriate public notification of the intention to seek approval to the scheme must be given. Every affected policy owner must be given a copy of an approved summary of the scheme.

7.19 The Commissioner may arrange for an independent actuary to prepare a report on the scheme and is entitled to be heard in the court proceedings dealing with the application⁴⁵.

7.20 Any change in the incidence of risks or rewards under life insurance contracts effected through reinsurance requires the approval of the Commissioner.⁴⁶ Thus changes in the effective ownership of portfolios of life insurance policies cannot take place without consent.

7.21
The "Insurance Acquisitions and Takeovers Act 1991" ("the IAT") covers changes of ownership of both general and life insurance companies in Australia. The objects of the IAT are expressed to be to protect the public interest in a number of ways, including:

by ensuring that the affairs of Australian-registered insurance companies are carried out in a prudential manner;

by preventing unsuitable persons from being in a position of influence over Australian-registered life insurance companies⁴⁷; and

by preventing the undue concentration of economic power in the Australian general insurance industry, the Australian life insurance industry, or in the Australian financial system⁴⁸.

7.22 For this purpose any takeover proposal must be notified to the relevant Minister and the proposal is stopped if the Minister makes either a temporary or a permanent restraining order. If a proposal proceeds without the necessary procedures having been followed the Minister may make a divestment order.

7.23
Part 7 of the IAT provides that the Minister may formulate "decision-making principles" to be complied with by him in exercising his powers under that Act. Principles were published in April 1992 and included, among the elements the Minister had to have regard to in considering whether a proposal was "contrary to the public interest":
6 (b) whether the proposal could adversely affect the interests of policy holders of an Australian-registered insurance company;

7.24 In the United Kingdom the ICA (UK) covers transfers of portfolios of life insurance business from one company to another. Sections 49 and 50 enable such transfers to be made with the approval of the High Court. It is necessary for various notices to be published, for the scheme of transfer to be available for prior inspection by policy holders, and for a report on the effects of the scheme to be made by an independent actuary.

7.25 "Controllers", defined as anyone (person or company) entitled to exercise 15% or more of the voting power of an insurance company, as well as the chief executive or managing director of the insurer, are required to satisfy the Secretary of State that they are "fit and proper" persons to control an insurance company.

7.26 Changes of life insurance company ownership are also controlled. Section 61 of the ICA (UK) requires any person seeking to become a controller of an insurance company through acquisition of 15% or more of the shareholding to obtain the approval of the Department of Trade and Industry before the change can become effective. The Department has three months in which to consider the merits and implications of the change in control. If it objects to a proposed change in controller it must give advance notice of this and allow the applicant to appeal.

Comment

7.27 In New Zealand there are no special constraints on either the change of ownership of a life insurance company or the change of effective ownership of the risks and rewards of a portfolio of life insurance business through reinsurance.

7.28 The "major transactions" provisions of the Companies Act and Stock Exchange Listing rules may apply, but these are for the benefit and protection of shareholders not policyholders. There is no requirement for a takeover of a life company or its portfolio of policies to be referred to a representative of policyholders. A life company can give financial assistance for the purchase of its own shares, and where the unanimous consent provisions are available and are used there is no requirement that this assistance be in the best interests of the life company concerned.

7.29 In Australia and the United Kingdom rules of law require court or regulator approval for changes of ownership of a life insurance company or of the risks and rewards under a portfolio of life insurance business.

7.30 Changes of company or portfolio ownership could have implications for policyholders in a number of ways, including in relation to the relative security and yield of their investments and (for participating policyholders) their share of the company's profits (see para 8.11 onwards for further discussion).

7.31 We think there are a number of questions which need to be addressed concerning the takeover of life insurance companies and life insurance business. We set out these questions in the final section of our paper.

Footnotes

See section 129 of the Companies Act 1993. In general terms "major transactions" are those involving the purchase or sale of assets representing more than half the company's pre-transaction total assets. A special resolution of the company is required to enter into a major transaction.
See sections 76 and 107 of the Companies Act 1993. A number of special provisions apply when a company is proposing to give financial assistance for the purchase of its own shares. These provisions are somewhat relaxed where the unanimous consent of all the shareholders is obtained (section 107). In each case the solvency test must be satisfied, and there are special, more restrictive, rules as to the application of the solvency test (sections 77 and 108).
See sections 4, 77 and 108 Companies Act 1993.
Under section 77 of the Companies Act the amount of any financial assistance given by the company at any time under section 76 in the form of loans is required to be deducted from the amount of the company's assets for the purpose of determining compliance with the solvency test. This deduction does not apply where a loan was approved under section 107 of the Act.
A requirement for satisfaction of the solvency test (Section 4, Companies Act 1993) is that "the company is able to pay its debts as they become due in the normal course of business.."
Not all these aspects of the transaction were necessarily subject to the financial assistance provisions of the Companies Act.
This constraint does not apply to business carried out by statutory funds outside Australia.
If the scheme is approved, and the Commissioner had arranged for an independent actuary's report to be prepared, then the person applying for consent to the transfer becomes liable to pay the Commissioner's reasonable costs of obtaining the actuarial report.
See Commissioner's Rules No 24, Reinsurance contracts needing approval issued on 12 September 1996, which designates any contract under which the reinsurer agrees to provide reinsurance in relation to the whole or any part of the life insurance business of the reinsurer, and there are financial benefits to both parties, as being a contract requiring the approval of the Commissioner under section 125. This appears a mechanism to maintain surveillance of, rather than prevent, use of reinsurance arrangements.
A position of influence is one where a person, on his own or with associates, controls 15% or more of the voting power of the company.
Recent announcements by the Australian government in the wake of the Wallis Inquiry suggest some aspects of the policy of the Act may change.

Main Contents
Glossary
Part I - Background
Part II - Life Industry Law and Practices
Part III - Public Policy Discussion
Appendices
INDEX || BACK || FORWARD

Our experience of New Zealand life industry practice
7.1	Over recent years there have been a number of instances in New Zealand where ownership, or effective ownership, of a portfolio of life insurance contracts has changed. Such changes have been effected in a number of different ways with a range of direct and indirect consequences for policyholders.
Acquisition by reinsurance
7.2	A fairly common technique for changing the risks and rewards of an insurance portfolio, without actually changing the legal ownership of the portfolio, is through use of reinsurance. In this method the acquiring company assumes all the risk under a portfolio of policies without any change of obligor. The selling company pays the reinsurer (acquirer) a reinsurance premium by transferring an appropriate amount of the seller's assets to the acquirer. The selling company remains legally liable under each contract but the acquirer takes all or a major part of that risk, and the associated reward, under a reinsurance contract.
7.3	The policyholders' contractual arrangements are undisturbed. Their consent to the reinsurance arrangement is not required even though the strength of their future claims may rest rather more on the viability and business philosophy of the acquiring company than on that of the selling company. Provided the bonus determination processes are not changed by the acquiring company there may be no change in participating policyholders' benefit expectations. However the policyholder's security cover may be improved or worsened depending on the capital position of the company assuming the risks under the reinsurance contract compared with that of the company ceding those risks.
Acquisition by takeover
7.4	We have also observed a few instances in recent years of change of ownership of New Zealand life insurance companies, and thus of their life insurance portfolio of business, effected by acquisition or takeover.
7.5	In such cases the equity participants would be subject to the normal rules of law concerning changes of company ownership. For example: The provisions of the Companies Amendment Act 1963 may apply if the offer is made in writing, is made to more than six members of the target company, and the target company has more than 25 shareholders; If a listed company is involved compliance with the Listing Rules of the New Zealand Stock Exchange may be required; If an overseas owned company is involved the consent of the Overseas Investment Commission may be required; Depending on the size of the transaction the provisions of the 1993 Companies Act concerning "major transactions" may have to be followed³⁸ . Note, however, that the company's policyholders (as creditors) have no standing in the shareholders' consideration of major transactions; If the target company was providing financial assistance for the purchase of its own shares (or those of its holding company) the transaction may be subject to the "financial assistance" provisions of the 1993 Companies Act³⁹ .
7.6	There are no special provisions of the Life Act, the Companies Act, the Securities Act or any other New Zealand legislation applying to life insurance companies, whether as target companies or acquiring companies. There is, for example, no requirement that policyholders should be consulted, or their consent obtained, before an acquisition or sale transaction can proceed. There is also no specific requirement that the directors of either an acquiring or of a selling company obtain independent actuarial advice on the effect of any prospective takeover transaction on the policyholders of either company before the transaction is proceeded with.
7.7	With respect to the interests of the policyholders of an acquired life insurance company: Under the Companies Act an acquiring life insurance company may use the assets of an acquired life insurance company to assist the purchase of that company's shares. The directors of the acquired company can assent to various of the resolutions required under the "financial assistance" provisions of the Companies Act provided the requirements of that Act are met, including the requirement to satisfy the solvency test⁴⁰ ; Where the giving of financial assistance is assented to under the "unanimous consent" provisions (sections 107/108) of the Companies Act, as could occur when a life company becomes a wholly owned subsidiary of another company, there is no requirement (unlike under section 76) for the directors of the acquired company to resolve either that the giving of the financial assistance is in the best interests of the (acquired) company giving the assistance or that the terms and conditions under which the assistance is given are fair and reasonable to the company. However, the requirements for satisfaction of the solvency test are more rigorous under the "unanimous consent" provisions than under the more general provisions⁴¹; The policyholders of the acquired company are, nevertheless, creditors of that company and are owed duties as creditors⁴² by the directors of the acquired company (although in many cases the companies have considerable discretion to determine the amounts owed to them as creditors).
7.8	With respect to the interests of the policyholders of an acquiring life insurance company the provisions of existing law appear to mean that such a company is generally free to use its own assets, or indeed the assets of a wholly owned subsidiary, either directly or as security to support borrowings used to finance the purchase of another company, including a life company. Where any such acquisition is made it needs to be questioned whether that acquisition is for the purposes of the "life insurance business" of the acquiring company and if there should be a separation of the life insurance policyholders' funds as provided for in section 15 of the Life Act.
7.9	Examples in the area include where one life insurance company acquired another life insurance company and: the acquisition was partly funded by bank finance, with the assets of the acquiring company pledged to the bank, with the bank having a charge over the assets of the acquiring company which ranked in priority to the claims of the policyholders. All the acquiring company's policies were non-participating i.e. the policyholders were not entitled to share in the company's profits; the acquired life insurance company gave extensive financial assistance⁴³for the purchase of its parent's and thus its own shares. This financial assistance included: a long term advance, representing around 10% of the acquired company's total assets, given to the acquiring company's parent and secured by the assignment of a second mortgage security over certain offshore assets which had been sold by the acquired company to its parent as part of the transaction; the distribution, to the acquiring company, post acquisition, of more than half of the acquired company's pre-acquisition shareholders' funds; the pledging of the rights to ownership of the acquired company's life insurance portfolio to a group of reinsurance companies as security for an advance to the acquiring company against future profits arising from that portfolio.
7.10	With respect to any consultation with policyholders we observed that in various instances, including that outlined in the preceding paragraph, the directors of the acquiring company did not seek the views of the policyholders or of any representative on the proposed acquisition.
Instances of changes of obligor
7.11	There were two recent instances where the New Zealand branches of United Kingdom life insurance companies were "domesticated", with the policyholders of the New Zealand branches of the United Kingdom companies becoming policyholders of New Zealand subsidiaries of those companies. These changes were effected through court approved Schemes of Arrangement under section 205 of the Companies Act 1955.
7.12	In both cases the companies requesting court approval to the transfers obtained independent actuarial advice, which was made available to the policyholders and the court, as to the fairness of the arrangements to the policyholders and the effect they would have on the financial security and future prospects of those policyholders.
7.13	These cases involved a change in the entity liable under the life insurance policies from a global United Kingdom-based company to a New Zealand incorporated company. These were arguably rather more fundamental changes to the position of policyholders than would occur with the takeover of one New Zealand life insurance company by another, because of the change in obligor.
7.14	One of the insurance groups involved in the domestication process sought to preserve for its New Zealand policyholders some of the regulatory benefits they were giving up by becoming members of a New Zealand incorporated life company. They achieved this by use of a "Policyholders Protection Guidance Note" which was protected by a Deed of Covenant.
7.15	The Independent Actuary, in an affidavit filed in the Court in support of the application for domestication by the company, said: 4.2 The disadvantages [of domestication] are: a perceived loss of policyholder security through the loss of membership of the world wide life fund. a perceived loss of future earnings caused by the narrower range of investments available in New Zealand. loss of United Kingdom legislative controls including: The fit and proper person legislation which controls senior management and directors, Appointed Actuary regime, Controls on the transfer of surplus to shareholders, Department of Trade and Industry reporting and other public reporting requirements, European Community Solvency Standards, Transactions between shareholders and policyholders should be no less than fair and equitable. change in the Articles of Association under which shareholders share in the surplus lack of any New Zealand bonus distribution protection for policyholders.
7.16	The Policyholders' Protection Guidance Note was designed to address these issues by prescribing the allocation of profits between participating policyholders and shareholders, by obliging the directors of the company to take actuarial advice on a range of matters, and, through the covering Deed of Covenant, to require that the company obtain policyholder approval for any change in profit distribution policy in favour of the shareholders. The Note could only be varied at the request of the directors of the company after taking the advice of the company's actuary and of an independent actuary. The distribution policy in favour of shareholders could not be improved without the approval of 75% of the policyholders.
Changes of ownership of life insurance companies and policies in Australia and the United Kingdom
7.17	Australia has legislative controls relating to changes of ownership of life insurance business, changes in the risks and rewards under life insurance contracts effected through reinsurance and takeovers or acquisitions of insurance (including life) companies.
7.18	Part 9 of the LIA (Aust) covers "Transfers and Amalgamations of Life Insurance Business". This Part (section 189 onwards) provides that no part of the life insurance business of a life insurance company can be transferred to, or amalgamated with the business of, another life insurance company without the approval of the Court⁴⁴. A copy of the scheme of transfer or amalgamation, and any actuarial report thereon, must be provided to the Commissioner. Appropriate public notification of the intention to seek approval to the scheme must be given. Every affected policy owner must be given a copy of an approved summary of the scheme.
7.19	The Commissioner may arrange for an independent actuary to prepare a report on the scheme and is entitled to be heard in the court proceedings dealing with the application⁴⁵.
7.20	Any change in the incidence of risks or rewards under life insurance contracts effected through reinsurance requires the approval of the Commissioner.⁴⁶ Thus changes in the effective ownership of portfolios of life insurance policies cannot take place without consent.
7.21	The "Insurance Acquisitions and Takeovers Act 1991" ("the IAT") covers changes of ownership of both general and life insurance companies in Australia. The objects of the IAT are expressed to be to protect the public interest in a number of ways, including: by ensuring that the affairs of Australian-registered insurance companies are carried out in a prudential manner; by preventing unsuitable persons from being in a position of influence over Australian-registered life insurance companies⁴⁷; and by preventing the undue concentration of economic power in the Australian general insurance industry, the Australian life insurance industry, or in the Australian financial system⁴⁸.
7.22	For this purpose any takeover proposal must be notified to the relevant Minister and the proposal is stopped if the Minister makes either a temporary or a permanent restraining order. If a proposal proceeds without the necessary procedures having been followed the Minister may make a divestment order.
7.23	Part 7 of the IAT provides that the Minister may formulate "decision-making principles" to be complied with by him in exercising his powers under that Act. Principles were published in April 1992 and included, among the elements the Minister had to have regard to in considering whether a proposal was "contrary to the public interest": 6 (b) whether the proposal could adversely affect the interests of policy holders of an Australian-registered insurance company;
7.24	In the United Kingdom the ICA (UK) covers transfers of portfolios of life insurance business from one company to another. Sections 49 and 50 enable such transfers to be made with the approval of the High Court. It is necessary for various notices to be published, for the scheme of transfer to be available for prior inspection by policy holders, and for a report on the effects of the scheme to be made by an independent actuary.
7.25	"Controllers", defined as anyone (person or company) entitled to exercise 15% or more of the voting power of an insurance company, as well as the chief executive or managing director of the insurer, are required to satisfy the Secretary of State that they are "fit and proper" persons to control an insurance company.
7.26	Changes of life insurance company ownership are also controlled. Section 61 of the ICA (UK) requires any person seeking to become a controller of an insurance company through acquisition of 15% or more of the shareholding to obtain the approval of the Department of Trade and Industry before the change can become effective. The Department has three months in which to consider the merits and implications of the change in control. If it objects to a proposed change in controller it must give advance notice of this and allow the applicant to appeal.
Comment
7.27	In New Zealand there are no special constraints on either the change of ownership of a life insurance company or the change of effective ownership of the risks and rewards of a portfolio of life insurance business through reinsurance.
7.28	The "major transactions" provisions of the Companies Act and Stock Exchange Listing rules may apply, but these are for the benefit and protection of shareholders not policyholders. There is no requirement for a takeover of a life company or its portfolio of policies to be referred to a representative of policyholders. A life company can give financial assistance for the purchase of its own shares, and where the unanimous consent provisions are available and are used there is no requirement that this assistance be in the best interests of the life company concerned.
7.29	In Australia and the United Kingdom rules of law require court or regulator approval for changes of ownership of a life insurance company or of the risks and rewards under a portfolio of life insurance business.
7.30	Changes of company or portfolio ownership could have implications for policyholders in a number of ways, including in relation to the relative security and yield of their investments and (for participating policyholders) their share of the company's profits (see para 8.11 onwards for further discussion).
7.31	We think there are a number of questions which need to be addressed concerning the takeover of life insurance companies and life insurance business. We set out these questions in the final section of our paper.