PRO Insurance Solutions

Debt Purchase

Outstanding debts with troubled insurers and reinsurers can have a severe impact on a company’s performance. By assigning those debts to PRO, our clients are able to create certainty of outcome, minimise financial costs and focus their efforts on their core business.

Our debt purchase solution delivers a range of advantages to our clients:

• Increased liquidity through accelerated cash flow
• Certainty of (re)insurance asset value
• Improved balance sheet by releasing bad debt provisions
• Potential improvements to both solvency calculations and rating position
• Reduced administration costs
• Ability to refocus on core business activities
• A solution to the growing problem of collecting aged debt.

How we work

When a company assigns its debt to PRO – in exchange for an immediate cash payment – we assume the right to receive any payments due under the (re)insurance policy or policies in question.

Legally, the underlying contractual relationship between the assured and the insurer remains in place and is unchanged. However, an assignment agreement is signed by both parties which explicitly details the benefits which are being assigned and the consideration paid for those benefits. This agreement contains covenants and warranties regarding the benefits assigned and what the parties to the assignment will or will not do.

The process is a simple one. It involves minimal cost to clients and the impact on business activities is limited to the requirement to make staff and records available so that we can undertake due diligence analysis of the debts.

The debt purchase process

The specific details of the process we use will depend on the nature of business being assigned – it differs between Creditors of Insolvent Estates (incorporating Policyholder Benefits) and Reinsurance Assets.

Reinsurance Assets

We will purchase the benefits due on reinsurance policies. This includes:

• Residual debt which is the portfolio of reinsurance remaining at the end of a Scheme of Arrangement (Solvent or Insolvent) or Liquidation after the inward liabilities have been crystallised
• Reinsurance assets including both billed reinsurance recoveries and contingent reinsurance assets (outstanding loss and IBNR values) with a focus on buying London Market and International recoverables.

Before the purchase, both parties sign a mutually approved confidentiality agreement to give PRO access to information – we have a standard template which covers most situations.

We can often carry out the due diligence remotely, provided the vendor has supplied the following information for analysis:

• Policy documents (slips and wordings – signed if available) showing reinsurers on risk
• Description of types of business written by reinsurers
• Data to support the outstanding debts, including schedule of balances for each reinsurer, split by unpaid billings, case reserves and IBNR reserves with breakdown by age of unpaid billings
• Copies of outstanding billing documents, underlying settlement details and broker documents and associated correspondence

In the majority of cases, we will be able to provide a quotation – for no fee – for the assignment of debts within five to ten working days following the completion of due diligence.

Once pricing has been agreed, the parties agree on an assignment document authorising the transfer of benefits associated with the insurance contracts. A notice of assignment will also be required to authorise PRO’s (re)insurance recovery – we can supply a pre-drafted assignment agreement. With the assignment document signed, we will then make payment for the benefits being assigned to PRO.

Creditors of Insolvent Estates

When we are purchasing the rights to potential future dividends from insolvent estates, both parties sign a mutually approved confidentiality agreement to give PRO access to information - we have a standard template which covers most situations.

We can often undertake due diligence remotely, provided the vendor has supplied the following information:

• Name of the scheme company which the claim being sold is against
• The established agreed amount of the scheme claim
• Details of dividend distributions which have already been received on the claim
• Where no claims have been established, what proof of claim has been filed and any related correspondence
• Details of any amount of offset contingent or otherwise.

Due diligence can take as little as an hour and might simply involve the review of a single email detailing the established values and dividends received to date from an insolvent estate. From our experience of assessing a large number of insolvent estates, we can provide a prompt quote – for no fee – to vendors with established scheme liabilities within these estates.

Once pricing has been agreed, the parties agree on an assignment document authorising the transfer of benefits associated with the insurance contracts. A notice of assignment will also be required to authorise PRO’s (re)insurance recovery – we can supply a pre-drafted assignment agreement. With the assignment document signed, we will then make payment for the benefits being assigned to PRO.

We can also provide scheme submission and commutation services in order to assist you in crystallising claim values before debt purchase. In these circumstances, we will require access to additional information as described in the section on Reinsurance Assets.