Other held-up insurance claims will then proceed
R&Q Investment Holdings has settle its long-running litigation with Equitas, allowing about $1bn (£615m) of outstanding insurance claims to be settled.
“As a result of payments arising from the settlement, it is anticipated that the Group will make a pre-tax loss for the year, but this is expected to be less than £5m and is a one off hit to the Group's financials,” R&Q said.
Tthe dispute has held up processing of interrelated reinsurance claims in the Lloyd’s market since the mid-1990s. The settlement follows a High Court ruling allowing Equitas to use an actuarial model to disaggregate parts of Exxon Valdes and Gulf War claims that were previously placed together.
Uncertainty after judgment
R&Q statement said: “On 11 November we announced receipt of the judgement of the English Commercial Court in relation to the dispute with Equitas over reinsurance claims from the 1989 Exxon Valdez oil spill and claims by Kuwait Airways/British Airways arising out of the first Gulf War of 1990.
“In that announcement, we drew attention to the complexity of the judgement and the uncertainty over its potential financial impact on the Group.
“In order to remove the uncertainty, the Board has decided to conclude a settlement with Equitas. In reaching its decision, the Board has been mindful of the importance of ensuring that the Group's ability to proceed with its expansion plans and various acquisition opportunities is not impeded by prolonged financial uncertainty.
Mutual solution
“The terms of the settlement comprise a mutual commutation between R&Q Re (UK), a wholly owned subsidiary of the Group and Equitas (whose business has now transferred to a subsidiary of Berkshire Hathaway) in respect of virtually all 1987 and post net liabilities reinsured by R&Q Re (UK).
“Following this commutation, the solvency position of R&Q Re (UK) will remain in excess of the regulatory minimum, avoiding the need for any additional Group support.
R&Q has also agreed to acquire the remaining 30% of Goldstreet Insurance Company ("Goldstreet") from Columbia Insurance Company (another Berkshire Hathaway subsidiary) for $6.25m.
Increases confusion
Ken Randall, R&Q chairman said: "In many ways the recent Court judgement increases rather than resolves the confusion over so called "spiral" reinsurance claims relating to Exxon and Kuwait.
“Quantifying the impact of the Court decision has proved difficult and appealing the decision would simply have prolonged the uncertainty for the Group.
“Consequently the Board has taken the view that it is in the Group's best interest to reach a settlement with Equitas and focus on building the business, especially given a number of important business developments planned over the next year.
“Whilst it is always disappointing to report the expectation of a loss overall for the year, the impact on NAV is modest and the Group's ability to maintain its progressive dividend policy and resume operations as normal is testament to the strength of our business model"
