03 July 2003 (Front page support)
INSURANCE DAY
INSURANCE DAY
(Oct 2007) Ruxley in landmark reinsurance-funded acquisition(Apr 2007) Ruxley in Generali run-off talks(Autumn 2006) Part VII business transfers - adding flexibility to the run-off equation(Spring 2006) Why we need a scheme monitor(Spring 2006) BAIC and after(Feb 2006) Solvent Schemes of Arrangement Conference(Nov 2005) Scheming for solvency(Oct 2005) A wake-up call(Sept 2005) Time To Wake Up(Sept 2005) Free Audio Conference: Rating the Raters(Aug/Sept 2005) Air Your Views(Aug 2005) Ruling could curtail solvent runoff schemes(March 2005) Tackling The Pools(Spring 2005) Selling like hot cakes(Spring 2005) The scheming solution(28/02/05) Influx of capital can impact premiums(Feb 05) Bringing finality to underwriting pools(Winter 04) Dangerous waters(04/11/04) Solvent schemes offer real boost(01/09/04) Buying Run-off(05/07/04) Run-off moves to another level(03/02/04) Run-off on a positive note(2004) 2003 A year of innovation(Winter 03) Ruxley buys Aviation & General(06/10/03) Ruxley takes whole of A&G(04/07/03) End of asbestos saga?(03/07/03) Ruxley closes APH book(Summer 03) Vulture Culture?
Ruxley Investments, led by John Winter, non-executive chairman of Spectrum Syndicate Management, and backed by a group of prominent London insurance market personalities, implemented its Policyholder Finality Programme on the APH book of former AGF subsidiary City General, which it bought in December 2001.
The programme has allowed Ruxley Investments to deliver total finality to the run-off and kill off the exposure, which included around 1,000 claims, mainly from US corporations.
The company is now examining other opportunities to implement the Policyholder Finality Programme on other run-offs.
Mr Winter said that although the programme has been used for APH run-off, it could be adapted to practically any line of business, and he said City General has a number of potential businesses in mind.
The City General run-off is thought to be the first time such a big APH book has been closed so quickly. When Ruxley Investments acquired City General, the insurer was capitalised at $544,509, its gross claims outstanding stood at $22.7m, while claims outstanding on the outward reinsurance programme totalled $17.2m. The last policy was written on the account in 1965 and independent analysis suggested the last claims were expected to be paid after 2020.
Mr Winter said: "Our strategy was to put the company into a [solvent] scheme of arrangement with creditors as soon as possible." The company contacted all the creditors, sending them details of the proposed run-off.
In July last year the creditors gave the proposals the go-ahead, and following a High Court approval the scheme became operative in October last year.
"While theoretically a solvent run-off was achievable in the long run, providing investment returns held up, the balance of $0.5m was a relatively thin cushion to meet unforeseen circumstances. Accordingly, the accelerated payment schedule and associated savings of the Policyholder Finality Programme ensured full payment could be achieved," Mr Winter said.
He said the Policyholder Finality Programme succeeded because the scheme of arrangement approved both by the creditors and the High Court placed a finite lifespan on the policies.
The scheme, for which PricewaterhouseCoopers’ Daniel Schwarzmann and DLA’s Juliet Stephens served as advisers, saw the company adopt a "no-nonsense approach", which Mr Winter said benefited policyholders.
Key to the Policyholder Finality Programme is removing litigation costs estimated to total around 20% of APH claims costs by implementing "no-quibble claims settlement" under which reasonable claims estimates are paid without question and in full.
Further savings were possible because the "no-quibble" ethos sped up the process: in City General’s case the average life of a claim was estimated at around seven years so the early resolution saved the company at least six years of operating expenses.
And policyholders were prepared to accept discounted payments on their claims because they were paid maybe years before they expected to be.
Mr Winter said the removal of exposures that the Policyholder Finality Programme had made possible could go some way to killing off the so-called "legacy drag" that established insurers and reinsurers and their newer counterparts are experiencing. Removing uncertainty over future claims is a prerequisite to attracting fresh investor interest in the insurance sector.