Mercantile Indemnity Company Limited & Ors, Re

Neutral Citation Number: [2025] EWHC 3396 (Ch) IN THE HIGH COURT OF JUSTICE BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES COMPANIES COURT (ChD) Case No: CR-2025-004099 Royal Courts of Justice, Rolls Building Fetter Lane, London, EC4A 1NL Date: 23 December 2025 Before : Mr Justice Hildyard - - - - - - - - - - - - - - - - - - - - - IN THE MATTER OF MERCANTILE INDEMNITY COMPANY LIMITED - and - IN THE MATTER OF ROMBALDS RUN-OFF LIMITED - and - IN THE MATTER OF RIVER THAMES INSURANCE COMPANY LIMITED - and - IN THE MATTER OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Mr Martin Moore KC (instructed by BCLP Law) for the Applicant Hearing dates: 1 and 2 December 2025 - - - - - - - - - - - - - - - - - - - - - Approved Judgment This judgment was handed down remotely at 10.30am on 23 December 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives. ............................. MR JUSTICE HILDYARD MR JUSTICE HILDYARD Approved Judgment Mr Justice Hildyard: Introduction Mercantile Indemnity Company Limited 1. This judgment concerns a Part 8 Claim Form issued on 22nd July 2025 by Mercantile Indemnity Company Limited (“Mercantile”), Rombalds Run-Off Limited (“Rombalds”) and River Thames Insurance Company Limited (“River Thames”) (Mercantile, Rombalds and River Thames together, “the Parties”). 2. The Parties thereby sought: (1) an order under s.111 (1) of the Financial Services and Market Act 2000 (“FSMA”) sanctioning an insurance business transfer scheme (“the Scheme”) which effects the transfer of the whole of the insurance and reinsurance business of both Mercantile and Rombalds (“the Transferring Business”) to River Thames; and (2) ancillary orders under s.112 of FSMA (including the dissolution without winding up of each of Mercantile and Rombalds). 3. At the end of the hearing, I concluded that the Scheme could and should be sanctioned. I made an Order accordingly. In this judgment, I set out my approach and the reasons for that conclusion. Overview of the Scheme 4. 5. 6. 7. 8. The business to be transferred to River Thames consists of all the general insurance and reinsurance business of each of Mercantile and Rombalds together with all associated assets (including outwards reinsurance and related security and guarantees) and liabilities. The Parties are all members of the Enstar group, the holding company of which is Enstar Group Limited (“EGL”), a company incorporated in Bermuda. All three Parties are registered in England and Wales and authorised by the Prudential Regulation Authority (“PRA”). All three are regulated by the PRA and the Financial Conduct Authority (“FCA”). The Enstar Group manages a wide range of run-off businesses across multiple global markets including the UK. A group summary chart is appended to this judgment. All the business to be transferred under or pursuant to the Scheme is in run-off and has been for some considerable time. The entire business of Mercantile relates to the run-off of policies originally written or transferred to Royal & Sun Alliance Insurance Limited (“RSAI”) and The Marine Insurance Company Limited (“MIC”) and which were transferred to Mercantile in 2019 pursuant to a Part VII transfer under FSMA. It is mostly direct business mainly written before 2006 which represents a mixture of general UK insurance and more specialist London Market business. The most material current reserves of Mercantile are for UK employers’ liability in particular in relation to latent claims arising from exposure to asbestos and other industrial diseases. MR JUSTICE HILDYARD Approved Judgment Mercantile Indemnity Company Limited 9. 10. The entire business of Rombalds consists of reinsurance and relates solely to the run- off of policies originally written by Nisshin Fire & Marine Insurance Company Limited and which were transferred to it in 2017. The business consists of general insurance liabilities written up to 2013 but the greatest exposure relates to US APH claims arising from the 1985 and prior underwriting years. As at 30th June 2025 it had eligible own funds of $8.2m and a solvency ratio of 187%. As at 31 st December 2023, its gross reserves for the business it is transferring were $3.1m gross. Rombalds does not have any outwards reinsurance. River Thames has a broad range of insurance and re-insurance business, which includes liabilities under policies originally underwritten by it as well as liabilities assumed pursuant to previous Part VII transfers (predominantly in 2014 and 2017) from other run-off companies in the Enstar Group. Its business is also all in run-off. It entered run off in 1997. As at 31 Dec 2023, approx. 53% of its reserves were in respect of US Asbestos, Pollution and Health claims (“APH”). A further 20% of reserves relate to direct and reinsurance motor liabilities. 11. Mr Martin Moore KC described River Thames as “the consolidator”: the purpose of the Scheme is to consolidate all the UK non-life run-off company business of the Enstar group into a single entity. This is expected to bring administrative, regulatory and capital efficiencies, as well as providing greater diversification amongst policies thereby reducing overall risk exposure. 12. Under the Scheme, the liabilities of River Thames, in the Post-Scheme position, will be comprised of 21% from the existing business of River Thames, 78% from the existing business of Mercantile and 0.3% from the existing business of Rombalds. 13. Mercantile and River Thames benefit from significant outwards reinsurance in the form of 75% quota share and 50% quota share respectively with another entity in the Enstar Group, namely Cavello Bay Reinsurance (“CBRe”). Mercantile’s quota share is collateralised in an amount of c.$527m. Mercantile also has other outwards reinsurance protection. Rombalds, which is by far the smallest of the three companies, has no outwards reinsurance to transfer. 14. 15. CBRe, which is presently the immediate parent of all three Parties, was incorporated in Bermuda. It is a class 3B Bermudian reinsurer and is regulated by the Bermuda Monetary Authority. CBRe has limited outwards reinsurance, with net technical provisions amounting to 98% of its gross technical provisions as at 31 December 2023. As at that date, CBRe had total liabilities of $8,975 million and surplus assets of $6,472 million, both calculated on a Bermuda regulatory basis. CBRe’s capital requirements are set according to the Bermuda Solvency Capital Requirements (“BSCR”). The required BSCR as at 31 December 2023 was $3,137 million, resulting in a coverage ratio of 206%. The Independent Expert (“the IE”, Ms Kate Angell of Towers Watson Limited) approved by the PRA in consultation with the FCA, has reported on the Scheme in accordance with the requirement of Part VII of FSMA. She has provided two reports to the Court, a main report dated 21 st July 2025 (“the IE’s Main Report”) and a Supplementary Report dated 21 st November 2025 (“the IE’s Supplementary Report”). In her Main Report, the IE has explained MR JUSTICE HILDYARD Approved Judgment Mercantile Indemnity Company Limited 16. 17. 18. 19. 20. 21. that Bermuda is deemed to have full equivalence to the Solvency II regime 1, and that she therefore considers this coverage ratio to be directly comparable to coverage ratios for UK insurers calculated on a Solvency II basis. As regards the non-reinsured portion of Mercantile’s liabilities, Mercantile has the benefit of a guarantee from EGL to the extent that its assets are insufficient to meet its obligations. That guarantee is limited to £500m. As at 30th June 2025, it appears from the IE’s Supplementary Report that Mercantile had eligible own funds of $136m and a solvency ratio of 176%. Turning to the Transferring Assets, under the Proposed Scheme, the Mercantile quota share arrangement with CBRe will transfer in favour of River Thames, so that the quota share arrangement which presently covers the Mercantile Policies will continue to do so post-transfer. The separate reinsurance contracts between River Thames and CBRe, covering the current policies of River Thames (“the Existing Policies”) will remain in force following the transfer. All Mercantile’s outward third-party reinsurance contracts will also transfer to River Thames as part of the Scheme, preserving the benefit of them within River Thames. No outward reinsurance is expected to be amended or terminated as part of the Scheme. In order to facilitate the transfer of all the assets within Mercantile and Rombalds, it is proposed that both be de-authorised as insurance companies on the Effective Date of the Scheme (as therein defined and which is intended to be 1 st January 2026). In the event that either company cannot be de-authorized on the Effective Date, they will continue to hold assets sufficient to meet the minimum capital requirement (“MCR”) until such time as they are de- authorised. Should this occur, then under the Scheme any remaining assets will automatically be transferred to River Thames as soon as the relevant company is de-authorised. Before turning to outline the approach of the Court and the mechanics of the Scheme, three features of the transferring businesses should be noted. One is that certain of Mercantile’s business was written through the Institute of London Underwriters (“ILU”) which required the insurer’s liabilities to be guaranteed by, conventionally, the holding company of the group of which the insurer was part. At the time of the original Part VII transfer from The Marine Insurance Company to Mercantile the original guarantee was released and replaced by a guarantee by EGL and CBRe. Ruth McDiarmid, a director of both Mercantile and Rombalds who has made two witness statements on behalf of those companies, has confirmed (in her second witness statement) that the guarantee has been amended so as to apply to all policies signed and issued by the ILU on behalf of MIC and subsequently transferred to River Thames. Solvency II is an EU directive which applies to all EU-domiciled insurance and reinsurance companies and was implemented on 1st January 2016. Solvency II sets out wide ranging requirements relating to financial resources, risk and governance and reporting requirements. As in the IE’s Reports, the term “Solvency II” is used to refer to both Solvency II and the new regulatory regime, which was implemented by the PRA with effect from 31st December 2024, and is separately known as “Solvency UK”. MR JUSTICE HILDYARD Approved Judgment Mercantile Indemnity Company Limited 22. 23. 24. 25. 3 Secondly, Mercantile has a surplus lines2 trust fund which provides security for policies issued to direct policyholders in the United States, as required under US regulatory rules where insurers are not licensed in the US to insure US risks. These trusts are overseen by the International Insurers Department of the National Association of Insurance Commissioners (“NAIC”). EGL has also guaranteed any shortfall in the value of assets in Mercantile’s Surplus Lines Trust. That guarantee has been novated to apply to the trust in River Thames’ hands. NAIC has confirmed that it has no objections to the transfer and the amendments to the trust agreement governing the trust fund. Thirdly if the Scheme goes ahead, the amount of the current letter of credit for River Thames, which provides cover for a proportion of its solvency capital requirement, is proposed to be increased from the date the Scheme becomes effective. Application has been made for approval from the PRA to treat the increased amount of the letter of credit as Ancillary Own Funds3 and for it to be classified as Tier 2 Eligible Own Funds and thus available to cover River Thames’ solvency capital requirement. The amended letter of credit will be for an amount of 50% of the SCR, with the monetary amount being updated annually once the SCR is finalised following each year-end. The IE’s conclusions are based on the assumption that a letter of credit for River Thames from the Effective Date of the Scheme for an initial amount of $50 million, with the amount being adjusted at each future year-end to remain at 50% of the SCR, will be put in place and treated as Ancillary Own Funds and receive approval from the PRA to be classified as Tier 2 Eligible Own Funds. The position of the PRA in relation to that approval is set out in their second report. Although, due to timing constraints arising from the PRA’s Statement of Policy, the PRA will not grant approval formally until shortly before the Effective Date, Mr Moore submitted that there is no reason to think that it will not be forthcoming. (At the hearing, I sought additional comfort in this regard: see paragraph [74] below.) A fourth matter I should also note is that, as might be expected with a business of such a wide geographical range, the governing law of the transferring policies is not uniform. As explained in Ms McDiarmid’s first witness statement, in the analysis undertaken at the time of the original Part VII transfers into Mercantile and Rombalds it was found that the location of the policyholder was a close proxy for the governing law. That analysis was re-run in the context of this transfer and discloses that as regards Mercantile the most prevalent governing law by number and reserves at 95.9% and 94.24% respectively was English law followed by US law at 3.46% and 5.74% and as regards Rombalds the equivalent figures for English law were 23.9% and 15.3% and for US Law 21.1% and 79.3%. In any proceedings brought in the USA against Rombalds or Mercantile in respect of liabilities transferred to River Thames, recognition of Scheme will be sought. At a later stage in this judgment I shall have to consider whether there is a reasonable prospect of it being obtained. According to the IE’s Main Report, ‘Surplus Lines business’ is a reference “to insurance that is unavailable through admitted carriers in the US state concerned but which can instead legally be placed with eligible non-admitted companies (which may be located in other US states or in other countries).” Assets which are contingent, and which therefore cannot be included in the Solvency II balance sheet, but which can be called on to absorb losses if needed. Ann Slade, a director of River Thames has explained in her witness statement in this matter that Tier 2 Eligible Own Funds are the second highest grade of capital that can be used to cover an insurer’s regulatory solvency capital requirement (“SCR”). MR JUSTICE HILDYARD Approved Judgment The Approach of the Court Mercantile Indemnity Company Limited 26. The function of the Court at this final stage is to consider first, whether the jurisdictional conditions to which its power to sanction and give effect to a scheme have been satisfied, and secondly, whether in its discretion, exercised judicially, it considers that it should exercise that power and sanction the Scheme. 27. The source of the Court’s power and the conditions to which it is subject are provided in Section 111 of FSMA, as follows: “(1) This section sets out the conditions which must be satisfied before the court may make an order under this section sanctioning an insurance business transfer scheme,………. (2) The Court must be satisfied that- (a) ……the appropriate certificates have been obtained (as to which see Parts I and II of Schedule 12); (aa) ………… (b) the transferee has the authorisation required (if any) to enable the business, or part, which is to be transferred to be carried on in the place to which it is to be transferred (or will have it before the scheme takes effect). (3) The Court must consider that, in all the circumstances of the case, it is appropriate to sanction the scheme.” 28. 29. Thus, the Court’s consideration of a scheme is first concerned with the identification of the purpose and mechanics of the Scheme and whether the statutory conditions have been satisfied. It is only if the Court concludes that those conditions have been satisfied that it turns to the discretionary exercise. I shall return to the principles relevant to the exercise of my discretion after outlining the principal features of the Scheme and the satisfaction of the conditions to which that exercise is subject. For the present, I need note only that the approach that the Court should take to applications under Part VII has recently been examined by the Court of Appeal in Re Prudential Assurance Company Limited [2020] EWCA Civ 1626 especially at [75]–[86]. The principal features of the Scheme in more detail 30. 31. The Scheme follows a relatively conventional pattern. It has been worked on for many months by the Parties, their legal and actuarial teams and with the usual regulatory engagement. Clauses 1 and 2, which are the interpretation and introductory sections are largely self-explanatory. They identify the policies, assets, liabilities and business to be transferred to River Thames. MR JUSTICE HILDYARD Approved Judgment Mercantile Indemnity Company Limited 32. The 75% quota share reinsurance provided by CBRe and the related collateral and security documents are expressly defined in the Scheme and include the £500m guarantee by EGL. 33. Mis-selling and historic mal-administration liabilities are included in liabilities of the Transferring Business. 34. 35. 36. 37. The Scheme provides for Policies forming part of the Transferring Business not to be transferred by virtue of the Scheme if the Court determines that or if such Policies are not capable of being transferred pending regulatory approval (and in particular policies issued to an insured in the USA under a surplus lines policy which cannot be transferred until US Regulatory Requirements (as defined in the Scheme) have been complied with. In fact, I understand that these requirements have been complied with, and the Parties do not anticipate that there will be any need to utilize that concept. Clauses 3 to 10 deal with the transfer of the business, assets and liabilities. They deal with the transfer itself and conventional provisions to ensure continuity of proceedings, references, mandates and personal data. Clauses 11 to 13 deal with a miscellany of matters, including the Effective Date, modifications, and governing law. As indicated above, the Effective Date is proposed to be 00:01 on Thursday 1st January 2026. It is to be noted that there will be no change to the terms and conditions of the policies. Further, these policies will continue to be administered by the same individuals and in accordance with the same claims handling approach. The Parties currently outsource the claims handling and policy administration to Enstar (EU) Limited (“Enstar”) who outsources claims handling for around 80% of Mercantile business to Pro Insurance Solutions Limited (“Pro”). The existing outsourcing agreements that Mercantile and Rombalds have with Enstar will transfer under the Scheme. After the Scheme the same individuals will conduct the claims handling and policy administration. Conditions to the Sanctioning of a Scheme 38. Following the end of the implementation period (31st December 2020) for the departure of the United Kingdom from the EU, insurance business transfer schemes under FSMA have a purely domestic focus. 39. Thus, a FSMA scheme need satisfy only the following criteria: (1) (2) it must involve the transfer to another body of the whole or part of the business carried on in the United Kingdom by an authorised person who has permission to effect or carry out contracts of insurance; it must result in the business transferred being carried on from an establishment of the transferee in the United Kingdom or Gibraltar; and (3) it must not be an excluded scheme, as defined in s.105(3) of FSMA. 40. Those criteria are satisfied in that the businesses of Mercantile and Rombalds, each an authorised person having permission to effect or carry out contracts of insurance, are MR JUSTICE HILDYARD Approved Judgment Mercantile Indemnity Company Limited to be transferred to River Thames, which will carry the Transferred Business (albeit in run-off) in the United Kingdom. The Scheme is not an excluded scheme. 41. The circumstances in which an application may be made to the Court are set out in s107 of FSMA. Also, s.107(2) of FSMA permits the application to be made by either or both of the authorised persons concerned. In this case it is made by both. As each of the Parties was incorporated in England & Wales the application has correctly been made in England to the High Court. The central role of the Independent Expert 42. Before returning to s108, I next address section 109, which is a central part of the architecture. 43. Section 109 of FSMA provides as follows: “(1) An application under section 107 in respect of an insurance business transfer scheme must be accompanied by a report on the terms of the scheme (“a scheme report”). (2) A scheme report may be made only by a person- (a) appearing to the [appropriate regulator] to have the skills necessary to enable him to make a proper report; and (b) nominated or approved for the purpose by the [appropriate regulator]. (3) A scheme report must be made in a form approved by the [appropriate regulator].” 44. Ms Kate Angell (”Ms Angell”), the approved IE in this case (see paragraph [14] above), is a senior director at Towers Watson Limited and a Fellow of the Institute of Actuaries and of the Society of Actuaries in Ireland. Her appointment as Independent Expert has been approved by the PRA, as has the form of her report. 45. 46. The IE Report is one of the most critical documents in any FSMA transfer. An Independent Expert is not in the position of an expert appointed by a party to litigation in the normal sense. The independence of the appointed Independent Expert is repeatedly emphasised and ensured by the provisions of the PRA’s statement of policy, and the PRA’s involvement in the process of nomination and oversight. Both the central importance and the uniqueness of the role was examined in Re Eagle Star Insurance Co. Ltd [2006] EWHC 1850 (Ch)4. Of course, the Court retains discretion to sanction the Scheme and the IE Report does not trump every objection but, nevertheless, the conclusions of the IE Report are clearly a central, and ordinarily decisive, matter. As the Court of Appeal stressed in Re Prudential Assurance Company Limited (supra) the Court is entitled to interrogate the report for errors, obscurities or inadequate or defective reasons but does not substitute its own expertise for that of the IE and should not depart from it without significant and appropriate reasons for doing so. See, in particular paragraphs 11-13. MR JUSTICE HILDYARD Approved Judgment Mercantile Indemnity Company Limited 47. Ms Angell’s own understanding of her role as IE is set out in Sections 1 of the IE Report, and her statement and recognition that she owes her duty to the court is set out in Section 7 of the IE Report. 48. Her IE Report is a detailed and well-structured report in which she examines the effect of the Scheme on the security of the policyholders concerned. She has usefully provided an Executive Summary at Section 2. This sets out her conclusions, which are that the policyholders of Mercantile, Rombalds and River Thames will not be materially adversely affected by the proposed scheme and nor will any outwards reinsurer. She briefly outlines her reasons in that section of the IE Report. 49. Obviously underlying the IE’s conclusions in relation to the Scheme is a great deal of detailed analysis, most particularly in: (1) (2) (3) (4) (5) (6) (7) Section 3 being an outline of the Scheme and the background to the Parties and CBRe. She has carefully analysed, with useful pie-charts to illustrate this, the breakdown of liabilities according to the type of claim, revealing thereby that the greater part of each of the Parties’ claims profile relates to asbestos claims. In Section 4 she has provided a detailed and relatively lengthy assessment of the financial implications of the Scheme and the extensive stress testing that she has done. She has carefully and methodically examined the latest balance sheets of the companies; the level of each Company’s reserves and the approach and assumptions adopted in their calculation; the uncertainties in projecting reserves over the short and medium term; and the reserving methodology applied in each case. She has gone on in the same Section 4 to review each Company’s compliance with “Solvency II”, eventually to be known post-Brexit as “Solvency UK” (see footnote 1 above), which focuses on prudential capital requirements and requires an assessment of the present value of future liability cash flows on a realistic basis, and what risk margin has been provided by each Company in that regard. Her report demonstrates the same logical and cohesive approach to the assessment of each Company’s liquidity positions, business strategy, investment profile, and litigation risk. In short, Ms Angell has provided a very well presented and detailed assessment of the financial considerations applicable. Section 5 deals with non-financial considerations, but also includes an assessment of the likely impact of the Schemes on outward reinsurers. Section 6 comprising her review of the proposed communication plan, which has now been complied with, and which I address further later. 50. Overall, the IE has concluded that the implementation of the Scheme will not have a material adverse effect on any group of policyholders or reinsurers of the Parties. MR JUSTICE HILDYARD Approved Judgment Mercantile Indemnity Company Limited 51. Further, she has concluded that the Scheme will not have a material adverse effect on the standards of administration, servicing or management. She has also carefully considered the current and post-Scheme governance framework and reached the same conclusion as regards governance. Transfer Regulations 52. Returning to the sequence of sections in FSMA, and, more particularly, to the requirement for adequate notification of the Scheme, s.108 confers upon the Treasury power to impose requirements on applicants making a s.107 application for the sanction of a scheme. Pursuant to that rule-making power, the Treasury has introduced the Transfer Regulations. 53. Regulation 3(2)(a) requires the publication of a notice that the application has been made in: (1) (2) Each of the London, Edinburgh, and Belfast Gazettes; and Two national newspapers in the United Kingdom. 54. Regulation 3(2)(b) further requires such notice to be sent to every policyholder of the parties and Regulation 3(2)(c) requires notification of any reinsurer of the transferor whose contracts of reinsurance are to be transferred. 55. Under Regulation 3(3), each such notice must: 56. 57. 58. (1) (2) be approved by the appropriate regulator prior to publication (or, as the case may be, being sent); and contain the address from which a copy of the report and a statement setting out the terms of the scheme and containing a summary of the report may be obtained free of charge by any person who requests them5. Regulation 3(5) requires that a copy of the application, the report and the statement setting out the terms of the scheme and containing a summary of the report must also be given free of charge to the PRA and FCA. Under Regulation 4(1)(b), no order can be made by the Court until a period of not less than twenty-one days has elapsed since the PRA and FCA were given the requisite documents. Regulation 4(2) permits the Court to waive the requirement, amongst other things, to send notice to all policyholders of the parties “in such circumstances and subject to such conditions as the court considers appropriate.” These matters were canvassed at the first hearing of the Part 8 Claim Form before Deputy ICC Judge Schaffer on 29th July 2025. By the Order he made directions were given as to advertising and, as is conventional, dispensing formally with the giving of the notice to each policyholder concerned. Broadly, the policyholders in scope for direct notification were the active policyholders and claimants of the Transferring Business, brokers and pool managers for whom Mercantile and Rombalds had reliable records. The active policyholders and claimants numbered c.10,000 whereas the Such requests must be complied with: Regulation 3(4). MR JUSTICE HILDYARD Approved Judgment Mercantile Indemnity Company Limited overall number of policyholders numbered c.1.6m. My attention was drawn to the (not unusual) fact that the vast majority of policyholders will not have any likelihood of claiming. 59. 60. The approach as regards River Thames has proceeded along much the same lines. Advertisements were proposed to be placed in two UK based papers, the international edition of the FT, the Wall Street Journal, The Economist and in insurance market publications and in the London, Edinburgh and Belfast Gazettes. As is conventional, a wealth of detailed material was available on a dedicated website. Again, as is conventional in transfers of any scale policyholders were directed to a specific telephone number and email address to which they could direct any queries. In accordance with paragraphs 3(5) and 4(1)(b) of the Regulations, a copy of the application, the IE Report and the statement setting out the terms of the Scheme and summary of the IE Report were each given to the PRA and FCA on 12th September 2025 respectively, a good deal more than twenty-one days prior to the date of the hearing. PRA and FCA involvement prior to the Hearing 61. 62. 63. The PRA and the FCA have been aware of the proposal to seek sanction of the Scheme for many months, if not more than a year. The development of the Scheme has been an iterative process involving them. The PRA, having consulted with the FCA, approved the form of the notice. In this case, the notices required by the order were published by 23rd August 2025. The FCA has confirmed in its second report that it is satisfied with the way in which the communications with policyholders have been conducted. Availability of Documents 64. Copies of the IE Report and the summary of the IE Report (along with the Scheme document) were made available on the website referred to in the communications from 29th July 2025. The Supplementary IE Report was available on the dedicated website from 24th November 2025. The Policyholders 65. 66. The evidence disclosed that the communications programme which involved sending out 23,403 communication packs elicited very few responses (245), all of which were queries as to why the recipients had been sent the communication pack and requests for details of the policies affected, and no objections or expressions of dissatisfaction relating to the transfer. However, that fact does not mean that the Court need not scrutinise the proposals fully. Indeed, as David Richards J remarked in Royal Sun Alliance Insurance PLC [2008] EWHC 3436 (Ch) at [28]: “… in a scheme for the transfer of general business where there are large numbers of policyholders whose individual policies, when seen on their own, may have a relatively low value and in circumstances where the issues raised are MR JUSTICE HILDYARD Approved Judgment Mercantile Indemnity Company Limited often… highly technical, it should come as no surprise that policy holders do not go into the detail of the information that is provided to them. In most cases, I suspect, they rely on those charged with statutory responsibilities in this respect and on the companies proposing the transfers to have full regard to the protection of their interests and, in my judgment, they are fully entitled to do so. Accordingly, the task of those involved in the scheme to scrutinise the effect of the scheme on policyholders is just as great where there are no objectors as in those case is where there are objectors.” Role and reports of the Regulators and the right to make representations 67. 68. 69. 70. 71. Section 110 of the Act permits various parties to be heard on the application for court approval to an insurance business transfer scheme. The parties entitled to be heard are the PRA and the FCA and “any person (including an employee of the transferor concerned or of the transferee) who alleges that he would be adversely affected by the carrying out of the scheme.” The Regulators, in accordance with standard practice, have submitted their reports. In addition to dealing with certain technical aspects of the jurisdiction, the reports describe the role of the Regulators in relation to Part VII transfer schemes in general and their views of the transfer from their regulatory perspectives. At the date of their first reports neither the PRA nor the FCA objected to the directions sought although each continued to evaluate the Scheme. In their respective second reports the PRA has stated that it is not currently aware of any issues that would cause it to object to the Scheme and the FCA has stated that the Scheme is within the range of reasonable and fair schemes available to the transferor and transferee, accordingly, neither objects to the Scheme. Neither the PRA nor the FCA sought to be heard at the hearing; nor did either send representatives. In the course of the hearing, there arose a point on which I requested their clarification: and it was duly provided: see below at paragraph [74]. Necessary Authorisations 72. 73. 74. To conclude the record of formal compliance, under s.111(2)(b) the Court must be satisfied that River Thames has the necessary authorisation to carry on the business transferred to it. This is confirmed by Ms Slade to my satisfaction. Under s.111(2)(a) the Court must be satisfied that the appropriate certificates under Schedule 12 have been obtained. In this case that will be a certificate from the PRA confirming that River Thames will, taking the proposed transfer into account, possess the necessary margin of solvency. After raising a query at the Hearing with particular regard to some small uncertainty as to whether and when the PRA would approve an application by River Thames to increase its existing letter of credit from $22.5m to $50m for inclusion in its Tier 2 Eligible Own Funds, the PRA provided me with letters dated 2 nd December 2025 which have provided me with sufficient comfort in this regard. MR JUSTICE HILDYARD Approved Judgment The Approach of the Court Introduction Mercantile Indemnity Company Limited 75. 76. I return to the discretionary function of the Court in determining whether to sanction a scheme if satisfied that the jurisdictional requirements have been satisfied. As mentioned earlier, the approach that the Court should take to applications under Part VII has recently been examined by the Court of Appeal in Re Prudential Assurance Company Limited [2020] EWCA Civ 1626, especially at [75]–[86] as follows: “ The approach to the sanction of applications under Part VII 75. The judge hearing an application for the sanction of an insurance business transfer scheme under Part VII should first, we think, identify the nature of the business being transferred and the underlying circumstances giving rise to the scheme. 76. As we have already indicated, different considerations affect different types of business. For example, the court considering the transfer of a book of annuities in payment will be primarily concerned with the interests of the transferring policyholders, whereas a transfer of with-profits business may raise directly the question of fairness between the policyholders remaining with the transferor, the transferring policyholders, and the companies themselves and their shareholders. Transfers of some types of business may engage the interests of employees or other stakeholders in the transferor or transferee companies. 77. The circumstances giving rise to the scheme proposed will also affect the approach of the court. For example, many schemes will reflect commercial transactions between transferor and transferee companies for the benefit of those companies. Other schemes will be occasioned by external events (such as the departure of the UK from the European Union) or the financial or other commercial circumstances of the transferor. Some may take the form of a rescue of the business retained or transferred. 78. The discretion of the court has frequently been said to be unfettered and genuine and not to be exercised by way of a rubber stamp. 6 That is true but, as in the exercise of all discretions, the court must take into account and give proper weight to matters that ought to be considered, and ignore matters that ought not properly to be taken into account. The correct identification of which matters fall on which side of the line in particular transfer situations has caused some confusion in this, and perhaps other, cases. 79. From our reading of the decided cases, we have detected a tendency on the part of those presenting these applications, in many cases accepted by the judges hearing them, to treat the judgments of Hoffmann J in London Life and Evans- Lombe J in Axa as if they were a comprehensive statement of the factors that should be applied by the court in all insurance business transfers. Indeed, counsel for the appellants urged us to accept them as applicable in their entirety See [54] above. MR JUSTICE HILDYARD Approved Judgment Mercantile Indemnity Company Limited to the transfer scheme in the present case, which, as we have earlier noted, is both very different from and a good deal simpler than those in London Life and Axa. We consider that this misunderstands those judgments, which were addressed to the particular circumstances of those cases and to the types of business being transferred. We would accept them as containing in many respects the factors likely to be applicable to the transfer of with-profits business, but they involve several factors that have no obvious application to a case such as the present. This was a point made in Royal Sun Alliance and by Snowden J in the present case at [39]-[40]. We very much doubt whether anything is to be gained by setting out and seeking to apply the factors listed in those cases, for example by Evans-Lombe J in Axa at [6], to transfer schemes involving every type of insurance business. 80. In a case such as the present, the paramount concern of the court will be to assess whether the transfer will have any material adverse effect on the receipt by the annuitants of their annuities, and on whether the transfer may have any such effect on payments that are or may become due to the other annuitants, policyholders and creditors of the transferor and transferee companies. The court will also be concerned to assess whether there may be any material adverse effect on the service standards provided to the transferring annuitants or policyholders. Whether any other factors require consideration will depend on the circumstances of the case. 81. The first duty of the court is carefully to scrutinise the reports of the independent expert and the Regulators, and the evidence of any person required to be heard under section 110 including those that allege that they would be adversely affected by the carrying out of the scheme. The court must understand the opinions presented and is entitled to ask questions about them as necessary. It will do so, in particular, with a view to identifying any errors, omissions, or instances of inadequate or defective reasoning. 82. In the absence of such defects, however, the court will always, in exercising its discretion, accord full weight to the opinions of the independent expert and the Regulators. That does not mean that the court can never depart from the recommendations of the expert or the non-objections of the Regulators, but it does mean that full weight must be accorded to them, so that a court would not depart from such recommendations and non-objections without significant and appropriate reasons for doing so. This is particularly so in relation to the financial and actuarial assessments required as regards the security of financial benefits. Whilst the judges hearing Part VII applications have considerable experience of the actuarial and specialist issues reported on by both the expert and the Regulators, the court is not itself an expert and should not substitute its own expertise for that of the entities required or entitled by statute to proffer those opinions. 83. This approach to the exercise of the court’s discretion applies to the crucial question of whether the proposed scheme will have any material adverse effect on policyholders, employees or other stakeholders. An adverse effect will only be material to the court’s consideration if it is: (i) a possibility that cannot sensibly be ignored having regard to the nature and gravity of the feared harm in the particular case, (ii) a consequence of the scheme, and (iii) material in the sense MR JUSTICE HILDYARD Approved Judgment Mercantile Indemnity Company Limited that there is the prospect of real or significant, as opposed to fanciful or insignificant, risk to the position of the stakeholder concerned. In some cases, it may also be relevant for the court to consider whether there would be such material adverse effects in the event that the scheme was not sanctioned. 84. Even if the court finds that the proposed scheme will have a material adverse effect on some group or groups of policyholders, it may still sanction the scheme in the exercise of its discretion. For example, this might occur if the scheme is in the nature of a rescue of the business. If there are differential effects on the interests of different classes of person affected, the court will need to consider whether the proposed scheme as a whole is fair as between those interests. 85. The court should adopt the same approach to the exercise of its discretion (described at [82] above) when making the more general comparison between the positions that would exist with or without the proposed scheme in respect of (a) the security of the policyholders’ benefits, and (b) the standards of service and corporate governance that the policyholders can expect. In many cases, this comparison will entail the court’s consideration of the contractual rights and reasonable expectations of policyholders, including the standards of service and governance that can be expected if the scheme is implemented. 86. Once the court has undertaken the evaluations we have mentioned, the court will decide whether or not to sanction the proposed scheme, if, under section 111(3) it is, in all the circumstances of the case, appropriate to do so. It cannot require the applicants to vary or alter the scheme, even though that may sometimes be the effect of the court expressing its concerns. The choices of both the scheme itself and its detailed terms are for the directors of the transferor and transferee concerned. The primary duty of those directors is, of course, to promote the success of their companies.” 77. 78. 79. 80. The extent to which this guidance materially alters the approach which had been adopted prior to its enunciation might be debated. However, I shall not repeat the old guidance, still less the long-valued guidelines provided in the context of long term life business by Hoffmann J (as he then was) in Re London Life Association Limited 21st February 1989, (unreptd.) and restated by Evans-Lombe J in Re Axa Equity and Law Life Assurance Society Plc [2001] 1 All ER 1010, especially since this transfer concerns general business and not long-term life business. As I hope will be apparent already, I have sought to identify, in accordance with the prescribed approach, the nature of the business to be transferred and its salient characteristics, as well as the context in which and purpose for which their transfers are proposed. I have also sought, in compliance with what is described as my first duty, carefully to scrutinise and understand the IE’s two reports and also the reports of the PRA and the FCA. I have interrogated those reports, both in my approach and in questions. Those reports amply support the conclusion as to the central issue that these transfers should not have any material adverse effect on policyholders, employees or other stakeholders. MR JUSTICE HILDYARD Approved Judgment Mercantile Indemnity Company Limited 81. 82. 83. Having regard to the analyses provided I am also satisfied that standards of service and corporate governance will not be adversely affected either. In short, the acid test of material adverse effect remains. It remains the case that it is not necessary to show that the transfer will be beneficial to those policyholders affected by it. In summary, I am satisfied that the IE reports and the Regulators’ reports are clear, readily understandable, cogent and convincing and I see no reason not to accept the overall views expressed in those reports. Would the Court be acting in vain? 84. 85. There is one issue particular to the Scheme that I have mentioned briefly earlier and to which I should now return. This is the question as to the prospects of recognition and enforcement of the Scheme in the USA. The question has arisen, as not infrequently it does, because it is well established that the Court will not exercise its discretion in favour of sanction if the transfer would have little or no significant effect and it would thus be acting in vain. 86. Mr Moore referred me in this context to Re Sompo Japan Insurance Inc [2007] EWHC 146 (Ch) at [19] and [20]. In that case, David Richards J was satisfied that the transfer scheme would have domestic effect in this jurisdiction (on the basis that 27% of policies both in number and by the value of reserves were governed by English or other UK law) and it is this that persuaded him that the scheme would “achieve a substantial purpose” (see at [26]). However, that was notwithstanding that he was not persuaded that the evidence provided (in that case of US law, which governed some 21.66% in number and 60.79% by value of the policies, and Japanese law, which it was thought might have governed other policies) demonstrated to the standard that at that time he considered applicable that the schemes would be given effect and enforced in those foreign jurisdictions. He did not consider the evidence “definitive” and went on to state (at [26], in terms which imply a higher standard of proof) that the “…evidence leaves me less than convinced that the scheme once sanctioned will definitely be effective as regards proceedings in foreign jurisdictions to enforce claims under policies which are governed by foreign law, although I acknowledge that it provides a proper basis for concluding that it may well be so effective in Japan and the United States.” 87. 88. Thus, Sompo is of relevance and assistance in supporting a conclusion that I should not refuse to sanction the Scheme simply because of the foreign element. But it does not assist as regards the issue as to foreign jurisdictions (and again in this case, the USA) which would be of considerable additional comfort. Happily (or, at least, helpfully), the approach has evolved since Sompo. Even where effectiveness in another jurisdiction might be an important element in giving the scheme its intended and full effect, the Court no longer needs certainty or to be “convinced” as to the position under the relevant foreign law: it is ordinarily satisfied, as (for example) was Snowden J in the context of a Scheme for which sanction was sought under Part 26 of the Companies Act 2006 namely, Re Van Gansewinkel Groep MR JUSTICE HILDYARD Approved Judgment Mercantile Indemnity Company Limited 89. 90. BV & Ors [2015] EWHC 2151 (Ch); [2016] BCC 172 at [71], that it has been provided with and can rely on “credible evidence” that the scheme will be recognised and given effect. In that connection, there is one point of general application which I ventilated at the Hearing and have raised in a number of recent analogous cases. Even though the standard or bar now set is lower in this context, and even though also the likely co- operation of the US courts has come almost to be conventionally assumed, evidence of the foreign law should really be provided by an independent expert. In this case, the evidence was clear, conventional and convincing in its conclusion that a US Court would be likely to recognize the UK court order. In all the circumstances, I decided I could accept it; but with reservations. I would not wish it to be taken that there is no need in a case where effectiveness is required in other jurisdictions, especially if the issue arises in relation to jurisdictions in respect of which the point arises less often and there is much greater uncertainty than the more usual case of the USA, for independent evidence which is complaint with CPR 35. Put another way, Mr Moore persuaded me I could in this case and in all the circumstances that I should be satisfied to the requisite lower standard; but I would have preferred independent evidence. Ancillary and miscellaneous matters 91. 92. 93. 94. 95. As I mentioned briefly at the beginning of this judgment, the Parties also seek orders ancillary to the Order sanctioning the Scheme under S112 of FSMA. Section 112(1)(d) gives the Court powers to make orders with respect to such incidental, consequential and supplementary matters as are, in its opinion, necessary to secure that the scheme is fully and effectively carried out. Those powers relate to conventional matters relating to continuity of references, premium and mandates and the like. It will also include, as is conventional, contracts which fall within the scope of s.112(2A) and s.112A. An order may also be made to provide for dissolution of transferors without winding up under S112(8)(b). The width of the Court’s powers under s.112(1)(d) and the overlap with the scheme are discussed by Lindsay J in Re Norwich Union Linked Life Assurance Limited [2004] EWHC 2802 (Ch) at paras 11 -12. The most recent decision on the ambit of s112 is Re Barclays Bank Plc [2018] EWHC 2868 (Ch). The cases on the width of s.112 have been given statutory recognition by virtue of the provisions of the new s.112(2A) and the Court’s powers have been further refined by s.112A. In this case, the order that was sought was that Mercantile and Rombalds be dissolved without winding up on pursuant to the power of the Court in s.112 (8)(b) either on the Effective Date , if they have been de-authorised by that stage, or on the second business day after a director of Enstar has certified that they have been so de- authorised. The precise choreography is explained in more detail in Ms McDiarmid’s first witness statement, but I need not rehearse it here. Conclusions MR JUSTICE HILDYARD Approved Judgment Mercantile Indemnity Company Limited 96. For the reasons I have stated, I was satisfied that the Scheme is one which it was appropriate to sanction and I did so. I was also persuaded to make the Ancillary Orders sought. 97. Adopting the summary provided at the end of his skeleton argument by Mr Moore: (1) (2) (3) (4) (5) (6) (7) the Scheme gives effect to a reasonable commercial objective; the IE has concluded on well-reasoned and convincing basis that the Scheme will not have a material adverse effect on the policyholders concerned; The Regulators have considered the Scheme in the context of their statutory duties and do not object to the Scheme; the Scheme is fully explained in the documents made available to policyholders in accordance with the Court’s order; no objections have been raised; all applicable statutory requirements have been complied with; and the ancillary orders are within the Court’s jurisdiction and there is no reason not to make the orders, which are commercially desirable. 98. I made an Order in the now conventional shortened form accordingly. Appendix 1: MR JUSTICE HILDYARD Approved Judgment Mercantile Indemnity Company Limited