A landmark ruling is expected to open the door for Lloyd's
syndicates to close open years of account by transferring
liabilities outside the market, experts predicted.
This week, managing agent Spectrum Syndicate Management
became the first company to successfully complete a Part VII transfer, following approval from the High Court.
The ruling allowed ‘open year' business written by Syndicate 982 to be transferred to life insurance
company, Sterling Life, part of the Sterling Insurance Group.
Law firm Clyde & Co, which advised on the transfer, said
it expected the transfer to be “the first of many” in the
Lloyd's market with more syndicates likely to consider
the procedure.
Juliette Stevens, partner in Clyde & Co's corporate
department, said: “The total liabilities of Lloyd's
syndicates run-off since 1993 is over £7bn, across over 104
open syndicate years.
“This transfer means that a new door has been opened
for capital providers who are looking to achieve finality in
their dealings with Lloyd's.”
Dan Schwarzmann, partner at Pricewaterhouse-Cooper, added: “It is clearly interesting and beneficial for
the market, there is no question about it.
“Whether it is acceptable to Lloyd's is something only
time will tell. But if the transfer is done for the right
reason, and if it is done carefully and sensibly then I
am sure there will be an uptake in the future.”
In the past, syndicates could only “draw a line” under their
exposures and achieve ‘economic finality' through a
reinsurance to close a contract with another syndicate.
Yet despite the successful Part VII transfer, Richard
Murphy, chief executive of Spectrum, said he was not
convinced it would herald “a significant leap” in the
number of similar applications from those currently in run-off.
He said: “This was in many respects the ideal syndicate
to undertake the first Part VII transfer from the Lloyd's
market.
“It is one of a few life syndicates and has a small
number of policyholders the vast majority of whom were
in the UK and Europe.”
The High Court ruling comes little over a year after
Spectrum failed in its attempt to pilot Lloyd's first
scheme of arrangement.
The pilot, with Syndicate 1121, which was in run-off for
open years 1998,1999 and 2000, was rejected by Lloyd's
as it was deemed “too dangerous” because claimants
would be drawing payments from the Central Fund.
This is a mechanism of transferring liabilities and
assets between legal entities.
A relatively new procedure, implemented under Part VII of
the Financial Services and Markets Act 2000, the legal
and regulatory requirements are demanding. It requires
court approval to undertake.
What is a Part VII transfer?
This is a mechanism of transferring liabilities and assets between legal entities.
A relatively new procedure, implemented under Part VII of
the Financial Services and Markets Act 2000, the legal
and regulatory requirements are demanding. It requires
court approval to undertake.
The advantage of a Part VII transfer is its flexibility; it can work for single contracts or entire portfolios of business.
