Equitas Completes Reinsurance Deal with Berkshire Hathaway

Equitas, the run-off vehicle established by Lloyd’s in 1996 to handle 1992 and prior years’ non-life liabilities, has completed its reinsurance transaction with National Indemnity Company, a member of the Berkshire Hathaway group of insurance companies. The transaction was first announced last year (See IJ web site Oct. 20, 2006).

Equitas said that “as a result National Indemnity Company now reinsures all Equitas’ liabilities; provides a further $5.7 billion of reinsurance cover to Equitas; and has acquired Equitas Management Services Limited. The current management and employees of Equitas Management Services Limited will continue to conduct the run-off of Equitas’ liabilities.”

The bulletin also noted that the “transaction has been approved by the Financial Services Authority (FSA) and the Equitas Trustees. The New York Insurance Department has approved various amendments to the Equitas American Trust Fund that were required to implement this transaction. In addition, the Corporation of Lloyd’s has received approval in an Extraordinary General Meeting for its £90 million [$176.7 million] contribution to Equitas which forms part of the deal.”

As part of the approval process the FSA also sanctioned the payment of a return premium of £50 million ($98 million) to the individual Names reinsured by Equitas, which will be paid later this year.

Equitas Chairman Hugh Stevenson called the completion of this phase of the deal with National Indemnity “excellent news,” as the Reinsured Names “can now be reassured by the $5.7 billion of extra cover that Equitas enjoys, as a result of which they can regard the prospect of failure of Equitas as extremely remote.” He also noted that the Names should be pleased by the £50 million of returned premium “which will be coming their way.”

Commenting on future plans, Stevenson stated: “Whilst the operations and staff of Equitas will move across to National Indemnity Company, Equitas itself will continue to exist and will now work towards achieving a transfer of all liabilities of Names into Equitas or a special purpose vehicle established for that purpose.

“This will require the approval of the High Court and, if approval is given before the end of 2009, Equitas will have the option to purchase from National Indemnity Company up to a further $1.3 billion of additional reinsurance cover for a further premium of up to £40 million [$78.5 million]. If, as we hope, a transfer of liabilities is achieved and foreign courts recognize the transfer, Names will no longer have any liability whatsoever under policies presently reinsured by Equitas.”

Sir Adam Ridley, Chairman of the Equitas Trust added: “Equitas management and staff now become part of National Indemnity Company. They have done a sterling job in bringing Equitas to where it is today and they deserve our profound thanks.”

“Since this transaction was announced in October last year we have had very extensive contacts with Reinsured Names, not least at the meetings with them held in Edinburgh, Manchester and London at the end of January. The proposed deal attracted overwhelming support, both at the meetings and in contacts and correspondence with individual Names. Criticisms have been few and far between. At no point have the Trustees encountered any remotely persuasive arguments against proceeding with it. Now that the regulators have given their consent and Lloyd’s has made its promised contribution, the Trustees are delighted to approve it and, thereby, to give Names practical finality.”