1. Exit by Solvent Scheme or Part VII Transfer Juliette Stevens and Paul Bugden

2. Exit by solvent scheme Juliette Stevens

3. What is a Solvent Scheme? An arrangement or compromise between a company and its creditors under Section 425 of the Companies Act 1985 A mechanism to value all insurance liabilities, both present and future Payment in full Types of scheme

4. Scheme Applications UK companies Portfolios of business Pools Foreign companies Lloyd’s syndicates Captives, P&I clubs and mutuals

5. Preparation for a Scheme Timetable Books and records Commutations (inwards and outwards) Strategy for dealing with major cedants Scheme design = Initial preparatory steps

6. Scheme Timetable Months 1 to 5 - policyholder identification, scheme planning, drafting, liaising with key policyholders, reinsurers and the FSA Month 6 - application to Court for leave to convene creditors meeting End of month 7 - creditors meeting Month 8 - Court sanctions scheme Month 11 - bar date for submitting claims Months 11 to 13 - agreement of claims Months 13 to 15 - adjudication of any disputed claims Month 15 - payment of claims Month 16 - scheme terminates and surplus distributed to shareholders

7. Steps to effect Scheme Court controlled process Application for leave to convene meeting of creditors Meeting of creditors Court sanction Companies House

8. Disadvantages of a Scheme Bar date Estimation Excluded liabilities

9. Exit by Part VII Transfer Paul Bugden

10. Part VII Transfers Introduced by FSMA 2000. Part VII Key Requirements: (i) Court Approval (ii) Independent Expert’s Report Other Requirements: (i) Advertisements (ii) Notices

11. Role of Expert Guidance - WASA (Justice Park) Must be independent Scheme Report to show no adverse effect on - transferor’s policyholders - transferee’s existing policyholders

12. Role of the FSA Closely involved throughout - approves expert - consults with other regulators - approves Scheme Report - assesses whether it supports Scheme  regulatory objectives  conclusion of Scheme report  policyholder objections - issues/obtains certificates - receives all evidence - can be heard by court

13. Role of the Court Must be satisfied - certificates issued (by Regulator) - transferee has necessary authorities “In all the circumstances of the case, it is appropriate to sanction the Scheme” - likely to sanction if  S cheme supported by FSA/expert  no valid policyholder objections

14. Possible Timetable

15. Advantages of Schemes True finality - liabilities are extinguished Economically advantageous - more likely to create a surplus for distribution Closing off unlimited guarantees Earlier payment and certainty - creditors will get immediate cash Run-off costs - the savings achieved can be passed on to policyholders More flexibility and scope for innovation Variation of policy terms Implementation - straightforward and consensual Not as heavily regulated as business transfers Available to all foreign companies if there is a sufficient connection

16. Advantages of Transfers No complex documentation. No voting procedure involved. No administration, once transfer approved. Reinsurers can be bound. Transfers between EEA States possible. Short time to finality. Dissolution. Covers compulsory liabilities policies

17. Schemes/Transfers Compared Scheme Foreign company must have sufficient connection Liabilities are extinguished Can cover part or all of liabilities Can vary policy terms Does not bind reinsurers Policyholders have to vote in favour Regulatory input is moderate Documentation is lengthy and fairly complex Costs - tend to be front end loaded but savings are made on run-off costs Business Transfer Foreign Transferor must be FSA authorised Liabilities are transferred Can cover part of all of liabilities Cannot vary policy terms Binds reinsurers Policyholders do not vote Is more heavily regulated e.g. notification requirements Documentation is more concise and straightforward Costs - disbursements tend to be high e.g. policyholder notification requirements and independent expert