Finality

More and more businesses are acknowledging the importance of proactively dealing with discontinued liabilities. Increased regulatory capital requirements to underwrite business, growing expectations of shareholders and the rising influence of rating agencies are just some of the reasons why.

PRO has a market-leading focus on developing strategies that bring finality to discontinued liabilities. This allows our clients to achieve closure of portfolios and, where possible, release surplus capital.

Working with a number of capital providers, we offer a range of finality solutions.

Reinsurance Solutions (Practical Finality):

This method ring-fences the whole or parts of the balance sheet by transferring liabilities to a financially strong reinsurer. The future operational costs and/or the costs of reinsurers default can be included. It releases the capital required to support liabilities by replacing it with a reinsurance cover.

Ensuring the security of reinsurers and the limit of cover is essential to ensure “practical finality”. We are able to achieve this by sourcing reinsurance products from a selection of reinsurance partners. We can then manage all ongoing operational issues, to best ensure that liabilities are contained within the reinsurance cover.

There are numerous benefits to Practical Finality:

It provides certainty by transferring liabilities, including an allowance for unforeseen deterioration, risk of reinsurer default, cost of management and other operating expenses. The transaction is relatively straightforward and can be completed quickly. Practical Finality is particularly suitable for large complex portfolios and it allows all aspects to be covered. Structuring transactions is flexible and there is an option to include loss corridors and profit commission. It is often the most effective solution for freeing up assets stranded overseas.

Sale of the Company

This solution provides owners with complete finality (unless guarantees or warrantees are given to the buyers) and has the benefit of releasing any surplus capital, allowing the company to focus on ongoing business. We work with a range of leading capital providers to facilitate the sale process. A sale to a third party investor or vulture fund can be coupled with reinsurance backing from a major risk carrier. Following the sale, we handle all aspects of ongoing operations, greatly minimising potential damage to corporate reputations.

For UK or Continental Europe based business:

Solvent Scheme of Arrangement

A Solvent Scheme of Arrangement (as governed by the Companies Act 1985) introduces a wholesale estimation of all present and future claims liabilities at a set date. A very flexible mechanism, it brings about a commutation with all policyholders and allows a final distribution to be made to creditors.

The advantage of this solution is that it enables a book of business to be shut down, providing certainty and the potential to release surplus capital. It also brings an end to a long tail run-off and potential claims deterioration and reinsurance failure. Long-term, there are also savings on future run-off costs.

We provide strategy planning, management of operational activities and IT solutions as part of the scheme process. We also offer pre-scheme commutation advice which can help to alleviate the risk of lost reinsurance.

Part VII Portfolio Transfer

This is a mechanism for transferring general insurance business, ranging from single contracts to an entire portfolio, to another insurer. This procedure is set out in the Financial Services and Markets Act 2000 (FSMA2000). Following Court approval, it provides the power to transfer assets as well as liabilities of the transferring business. Such assets can include the cash supporting reserves, the reinsurance assets and trust funds.

The advantages of Part VII Transfers are that they offer finality to the transferor and have the flexibility to be applied to portfolios or whole books, they also have considerable benefits for the collapse of complex (re)insurance pools. Following transfer the court has power to make an order for the dissolution of the transferor.

Our experienced team is able to help with all aspects of the transfer, including identifying and preparing the business to be transferred and the preparation of the report by the independent expert, as required by FSMA2000.

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