Employing a scheme manager could result in quicker closure and reduced costs, say David Hunt and Richard Emmett.
Closing an insurance company through a scheme of arrangement has never been easy. Policyholders have paid their premiums and are entitled to receive a fair value for crystallising their policy. So insurers wanting the benefits of finality must first undergo an increasingly rigorous legal process as new schemes set ever higher standards.
Putting London Market business through a scheme is particularly complex because of the nature of the risks and the geographical spread of policyholders. In many cases, the less than ideal state of policy records is a major hindrance too. On top of these difficulties, creditors and courts are becoming more aware and more demanding, as the rejection of the BAIC scheme in 2005 demonstrated.
Following that warning shot, it became clear that scheme advisers and managers would have to take much greater account of creditors’ concerns – and prove that they had done so. The success of the WFUM schemes in 2007 showed that the courts would still approve complex schemes. However, that success came at a price – greater transparency and a lot of extra work in preparing the scheme.
The scheme manager sits between the scheme adviser, who advises on the detailed scheme structure, and the scheme company. Although each scheme is different, the experience and in-depth understanding of the process enables a scheme manager to assist in mapping out a successful strategy for each case.
“The sooner a scheme manager is involved, the quicker and therefore less costly the process is likely to be
A scheme manager’s knowledge of insurance and claims issues adds value to the scheme company and increases the chances of success. The reputation of a good quality scheme manager can be an influence upon creditors’ confidence that the scheme will be operated to the highest professional standards. Similarly, an experienced scheme manager will have good relationships with the legal and actuarial firms that regularly deal with schemes.
Companies can manage a scheme in-house, but for several reasons they may well find it more expensive. The sooner a scheme manager is involved, the quicker and therefore less costly the process is likely to be. An experienced scheme manager can accelerate the process, increase creditor support and greatly increase the likelihood of a successful outcome.
David Hunt is chief financial officer and Richard Emmett is divisional manager of PRO Insurance Solutions.