Collecting Reinsurance from the London Market NEW YORK - 27th July 2006 a panel session sponsored by service provider Helix and solicitors Beachcroft

Chairman Mark Wigmore (ex-Travelers) posed three questions to the group:

1. What makes London Market practices and procedures so unique?

Jonathon Rosen (Home insurance, in liquidation) began by determining that key problems include the lead/follow market, non-payers, brokers holding essential records - and within run-off - the lack of any premium-flow relationships.

Mike Palmer (Helix) elaborated that there are a myriad of institutions, bureaus and processes, all alien and confusing for the USA. He posed the question "who becomes lead if Equitas commutes?".

Keith Kaplan (Reliance, in liquidation) expressed frustration with the sequential presentation of claims by brokers to individual reinsurers. The ideal solution would be to role all historical, poorly performing broker relationships into one paid-for provider.

Brian Snover (Berkshire Hathaway) likened the run-off environment to being a world with few friends, and the proactivity of brokers on their behalf being akin to their enthusiasm to broke claims to the 10th floor of a building with no elevators!

David Tiplady (Beachcroft solicitors) responded for the London Market by stressing that through "LMP" (London Market Practice) initiatives recently imposed, the "FSA " (Financial Services Authority) were prospectively, although not retrospectively, addressing the issue. The "deal now, process later" approach of old had to change.

2. Should the US support UK Solvent Schemes of Arrangement?

Brian Snover set the scene. Whilst the reasonableness of schemes depended upon their individual circumstances, they are an anathema to the very reason insurance and reinsurance is purchased. They are "cut and run", "shotgun divorces" good neither for the domestic ceding market nor for the policyholders.

Jonathon Rosen dwelled upon the unfairness of the majority binding a minority, all too frequently following very short, enforced periods of time to identify and submit proofs of claim.

Keith Kaplan noted his problem of the vast number of contingent claims upon the Reliance estate (42,000) and the impossibility of translating these into proofs of claim.

Vince Vitkowsky (Edwards Angell Palmer & Dodge) questioned how best US cedants and policyholders might protect their position within the varied circumstances.

Mike Palmer explained the use of "classes" within Schemes to appropriately group and represent creditors, and stressed the fact that UK courts would reject proposed schemes where it considered any particular class of creditors/policyholders had not been appropriately protected.

David Tiplady responded to a question about a recent Lloyd's "Part VII" transfer saying that they were rarely used, unlikely to become a trend, and will not be applied to complex "Central Fund" cases.

Mark Wigmore concluded the subject by identifying a mood of "scheme envy" amongst US insurers/reinsurers who whilst outwardly evincing table thumping resistance, privately wished they had access to adopting them also!

3. Has Equitas been a success?

This question attracted a unanimous "yes", adding that very few would have so predicted that reply ten years ago when it was created. Its balance sheet looks as positive now as it did then, thanks largely to the excellent deals it has leveraged during that period. The majority of the panel did not, however, believe that the now larger Lloyd's Run-Off Group (1993 and post run-off underwriting years) would follow suit and become "Equitas 2".

This Special item appeared in issue 108 of JTW News - September 2006

Author: Julian Ward - JTW