HIGHLANDS INSURANCE COMPANY (UK) LTD. PLACED IN LIQUIDATION
11/1/2007
The Directors of Highlands Insurance Company (UK) Ltd. have recently concluded that the London Market run-off insurer is insolvent and have placed it in liquidation. Highlands Insurance (UK) has been in protracted litigation in Texas with its former affiliate, Highlands Insurance Company, over a proposed run-off plan for Highlands Insurance Company. UK Insurer Markel International Insurance Company Ltd. had initiated involuntary insolvency proceedings against Highlands UK on June 1st, 2007 in the Chancery Division of the Companies Court, United Kingdom in an attempt to prevent Highlands UK from continuing to litigate its objection to Highlands Insurance Company’s run-off plan.
It is understood that the Highlands companies were close to resolving their differences when a trial schedule to begin October 8th, 2007 was postponed to January 2008. One issue that Highlands UK challenged was the purported novation and assumption of some of Highlands Insurance Company’s policies to Highlands UK.
Highlands (UK) was established in 1974 and began writing business in 1982. It wrote predominantly London market excess of loss business until it went into run-off in January 1994. As at 31 December 2005, the date of its last audited balance sheet, Highlands had gross technical insurance liabilities of approximately £77million.
WFUM POOLS SOLVENT AND INSOLVENT SCHEMES OF ARRANGEMENT SANCTIONED BY THE UK COURTS
9/20/2007
On 27 October 2006 votes were taken of the creditors of the 13 solvent members and one insolvent member of the Willis Faber Underwriting Management Limited (WFUM) pools regarding proposed Schemes of Arrangement. The effect of the proposed scheme would be to terminate any obligations that the pool members had under policies issued by it.
The requisite number of votes were obtained for to each of the proposed schemes - 75% by value and the majority by number voting in favour. The Sanction Hearing to approve the Schemes of Arrangement was intended to have taken place in January 2007 however a number of Creditors indicated that, despite a vote in favour, they would object to the schemes being sanctioned. A Sanction Hearing before the English Court is required before the schemes can become effective.
Shortly before the Hearing, which was rescheduled for 17 September, the Creditors withdrew their objections; the Sanction Hearing therefore went ahead unopposed.
Despite this the Judge at the WFUM hearing considered very carefully the question of fairness of the proposed schemes. In particular he considered the issues raised by the Judge at the Sanction Hearing on British Aviation Insurance Company (BAIC) proposed scheme of arrangement.
1. Number of Classes – In BAIC the Judge indicated that he did not think that Creditors who had unpaid or reserved claims could vote in the same class as those whose claims were incurred but not reported (IBNR). This matter was debated at length before the Court at the “Convening Hearing” for the WFUM Schemes in April 2006. It was held that there should be two classes, one for creditors whose claims were unpaid or reserved and another for creditors whose claims were IBNR. The Judge at the WFUM Sanction Hearing agreed with this.
2. IBNR One of the most important issues considered by the Judge at the WFUM Sanction Hearing was whether it was fair to impose a Scheme of Arrangement on policyholders in respect of their IBNR claims. The Judge in BAIC indicated that he did not consider that it was fair. The Judge in WFUM however considered that if the creditors had decided, based on the requisite majorities, that they wished to enter into the Scheme of Arrangement then, irrespective of his views, he would not look behind that.
3. Insolvency of part of the Pool The fact that one of the Pool Members, Sovereign Marine & General, represented approximately 50% of the estimated total liabilities of the Pool and was insolvent appeared to be a relevant consideration. Sovereign has already been in a Scheme of Arrangement for over 7 years and it is only the imposition of a Bar Date which was being considered by the Courts. Generally, creditors have no objections to insolvent insurers imposing Bar Dates after the company has been in run off for a reasonable length of time. They generally consider that by reducing run-off costs they can increase payment percentage to creditors. The fact that Sovereign intended to impose a Bar Date irrespective of the outcome of the Sanction Hearing in relation to the solvent schemes was an important consideration in view of the fact that claims handling and reinsurance collections is done on a Pool basis. If Sovereign imposed a Bar Date and the remaining solvents did not there appeared to be a concern that claims handling and reinsurance collections would become fragmented which could disadvantage policyholders.
In view of the above the Judge Sanctioned the Schemes of Arrangement. The next step is an application to the US Bankruptcy Court for the Southern District of New York under Chapter 15 for recognition of the schemes and additional relief; it is expected that the Chapter 15 Hearing will take place before the middle of October shortly following which the schemes will become effective. The Bar Date will then be 180 days from the date the schemes becomes effective - approximately mid-April 2008.
Creditors with claims against any of the WFUM Pool companies must submit any clams they may have under policies issued by the Pool on or before that date failing which they will lose any rights they may have to insurance coverage under those polices against the WFUM companies.
SPECIAL MASTER RECOMMENDS THAT THE SPECIAL DEPUTY RECEIVER'S PLAN FOR THE REHABILITATION OF HIGHLANDS INSURANCE BE DENIED
4/18/2007
Following protracted contested hearings that began in September 2006, Tom Collins, Special Master, has recommended to the Texas Insurance Commissioner that the plan for the "rehabilitation" of Highlands proposed by the current Special Deputy Receiver be denied. Collins ruling is based on the fact that there will be no "rehabilitated" insurer emerging from the proceedings but rather that the insurer will be liquidated under the plan and that the plan cannot guaranty that all creditors would receive the same payment percentage over the anticipated 20 year plus run-off.
Highland's liabilities exceed its assets by over $180 million. Highlands implemented a proof of claim filing date of March 30th, 2007 that was equally applicable for either rehabilitation or liquidation proceedings.
NEW JERSEY APPELLATE COURT STRIKES DOWN CLAIMS ESTIMATION PLAN AND UPHOLDS ARBITRATION RIGHTS IN RE LIQUIDATION OF INTEGRITY INS. CO.
10/2/2006
The liquidator of Integrity Insurance Company has been at the forefront of the debate surrounding the use of claims estimation of IBNR to allow for early closing of insolvent estates. That effort has been sharply rebuked by a New Jersey appeals court, which has struck down a provision in the liquidator's final dividend plan that permitted claims estimation. The court also stuck down another provision that rendered non-arbitrable certain disputes under reinsurance contracts. The appellate court sent the matter back to the liquidation court for consideration of any of the other available mechanisms for closing the liquidation.
In reversing the liquidation court on the issue of claims estimation, the appellate court held that IBNR claims were actuarial estimates and were not absolute. Therefore, found the court, the liquidation statute bars those claims from sharing in the assets of the estate because of their contingent status. The court rejected the liquidator's argument that IBNR claims become absolute when the liquidator determines to settle those claims through estimation, finding that such alchemy is not permitted under the liquidation law. Thus, the court found, the liquidation statute prohibits the provisions of the plan allowing estimated claims to be reduced to present value.
In reversing on the issue of arbitrability of disputes under reinsurance contracts, the appellate court followed the reasoning of Suter v. Munich Reins. Co., 223 F.3d 150 (3d Cir. 2000). The appellate court agreed that there was no potential friction between the liquidation law and having reinsurance disputes decided by arbitrators. The court rejected cases from the 10th, 5th, and 2nd Circuits that have reached contrary decisions.
This case does not end the debate concerning claims estimation, which is now being addressed via model liquidation laws, and certainly does not end the debate about whether receivership abrogates the arbitration clause in reinsurance contracts. In New Jersey, however, claims estimation is no longer permitted and arbitration is no longer barred in liquidations; at least until the New Jersey Supreme Court holds otherwise.
SOUTHERN AMERICAN INSURANCE COMPANY SETS FINAL CLAIM BAR DATE OF DECEMBER 28th, 2006
8/26/2006
The Special Deputy Liquidator of Southern American Insurance Company has announced that a Final Claim Bar Date has been set for December 28th, 2006. A Final Proof of Claim Form stating a final claimed amount for remaining SAIC claims, along with all supporting documentation, must be completed and a hard copy filed and received by the Liquidator of SAIC by 5:00 PM MST on December 28, 2006 in order to be entitled to any payments from the estate of SAIC.
Each claim may have multiple parts. Current and future values on existing claims and incurred but not reported (IBNR) claim amounts should be valued and reported/claimed on an undiscounted basis as of December 28, 2006.
IBNR and long tail claims are required to have sufficient supporting documentation submitted at the time of filing such as:
Amounts spent on defense and indemnity, including all settlements
Actuarial projections that show how and when losses trigger the SAIC policies
Trigger and allocation theory and the case law basis from which these are derived
Supporting documentation for all components of the existing claim, including any IBNR, will be reviewed by the Liquidator’s claims staff in a manner consistent with all prior evaluations to determine the validity and reasonableness of the claim and may include a review by the Liquidator’s actuary.
Failure to provide appropriate and adequate supporting documentation to allow the Liquidator to evaluate the claim and to assess any discounted net present value may result in the Liquidator disallowing in whole or in part any unsupported part of an existing claim, including any IBNR.
HIGHLANDS INSURANCE COMPANY COMPLETES IBNR RESERVE ANALYSIS – LIABILITIES EXCEED ASSETS BY $181 MILLION
6/30/2006
On June 30, 2006, the Special Deputy Receiver of Highlands Insurance Company filed its May 31, 2006 financial statement with the liquidation court. The May 31st statement reports total assets available of $319 million, while total liabilities are reported of $500 million. The liabilities include $227 million reported as Net Case and ALAE Reserves, while $185 million are reported as Net IBNR Reserves. Until this report, Highlands did not report on IBNR reserves, merely indicating that the IBNR reserves were under actuarial review.
Highlands had previously been ordered to submit a rehabilitation plan to the liquidation court by July 17, 2006 and hold hearings on the proposed plan in September of 2006. It is not clear what effect the May 31st financial statement will have on the forthcoming plan.
RELIANCE INSURANCE PETITIONS TO AMEND CLAIM PROCEDURES - WOULD REQUIRE CONTINGENT CLAIMANTS TO SUBMIT CLAIM INFORMATION OR RISK PRIORITY STATUS
6/22/2006
On June 22, 2006, in a purported effort to complete its first post-liquidation reserve analysis, the Liquidator of Reliance Insurance Company has petitioned the court to amend its existing Claim Procedures Order, which was enacted in September 22, 2002. The Liquidator notes in the petition that over 42,000 proof of claims (POCs) remain filed with the estate as contingent only with no specified claim amount.
The amended order, if approved, would require that policyholders with contingent POCs to file complete claim information with Reliance within 120 days of the order if the claim has been resolved since the POC was filed, and 180 days of the order if the claim remains unresolved. The amended order would further require that unresolved claims have data updated on at least an annual basis, unless otherwise directed by the liquidator. Once an underlying claim is finally resolved, the policyholder is required to submit full and completed updated information within 60 days of resolution.
Failure to comply with the amended order may subject a policyholder to produce documents under a subpoena issued by the Liquidator. The Liquidator may also penalize policyholders deemed not to have complied with the amended procedures by reprioritizing their Class B payment priority status to the subordinate status of Class G(2), effectively eliminating any distribution the policyholder may have otherwise been entitled to.
Global Risk Capital is actively seeking to purchase unallowed and contingent claims that policyholders may have against Reliance. For more information, please contact Dade Nigro at 202-585-1319 or dnigro@g-risk.com.
FENCHURCH INSURANCE LIMITED COMPLETES PART VII TRANSFER
6/12/2006
NRG Fenchurch Insurance Limited has completed a Part VII transfer of all its policies to NRG London Reinsurance Company Limited.
WFUM POOL CREDITORS MEETING
6/9/2006
WFUM pool scheme of arrangement granted leave to convene creditors' meetings by the UK High Court.
NRG VICTORY REINSURANCE
5/23/2006
The NRG VICTORY REINSURANCE LIMITED scheme meeting held on 23 May 2006 was adjourned due to additional creditors asserting claims
