Restructuring and insolvency

In this chapter of our Annual Insurance Review 2019, we look at the main developments in 2018 and expected issues in 2019 for restructuring and insolvency.

Key developments in 2018

The insurance insolvency and restructuring area has been phenomenally busy in 2018 with firms preparing for Brexit. We have seen large-scale Part VII transfers (the business transfer mechanism under Part VII of the Financial Services and Markets Act 2000) where large groups’ business has been transferred to specially established member companies in continental Europe. Lloyd’s, for example, chose Brussels as its foothold and many others have chosen Luxembourg, where the regulators have been encouraging and capitalising on the influx of new business and real estate developers have been building new office space.  RPC is heavily involved acting for RSA in its cross-border Part VII.

On a much smaller scale but of interest to many in the run-off field, 2018 saw the first proposal for a solvent scheme of arrangement by Stronghold Insurance Limited triggered by Solvency II requirements that came in at the beginning of 2016. This was reminiscent of the 1990s and early 2000s when this court-directed global commutation mechanism was used very widely, creating exit solutions for hundreds of London market insurers. The proposed scheme was examined closely at the first hearing in court, with the judge directing changes to the number of creditors meetings that must be held, separating notified outstanding claims from IBNR (incurred but not reported estimated future claims) on this largely asbestos, health hazard and pollution book of business. This case has set the parameters for the calling of meetings for these categories of claim. Also, the role of the regulators where marginal solvency is caused by Solvency II is now under scrutiny. RPC is acting for a counterparty to this scheme.

What to look out for in 2019

We believe there will be much more Brexit-related activity with, for example, an increased flow of inbound insurers seeking advice on UK regulatory approval including the establishment of subsidiaries where previously there were branches.

The rise again of the solvent scheme of arrangement is a real possibility in the case of those companies in run-off who are feeling the squeeze on margins and might fail or simply do not comply with the capitalisation requirements of Solvency II.

Authored by Andrew Price.

Download our full Annual Insurance Review 2019 for more insights.