Chatting Lloyd's Equitas

01

Lloyd's market suffered huge underwriting losses between 1988 and 1992, which seriously threatened the survival of Lloyd's. Because it is impossible to estimate the amount of liability that will occur in the future of the insured policy, the syndicate has no way to close the account through the Reinsurance to Close,RITC) after Lloyd's's usual 36-month account period. These circumstances have led to many lawsuits in the market, and members hope to resolve financial liabilities through the courts. Ultimately, Lloyd's sought its own market scenario, the Rebuild Renewal Program (R & R), to address financial uncertainty and litigation.

The plan ended in June 2009 with the transfer of all non-life insurance liabilities for 1992 and previous years out of the Lloyd's market by statutory means.

02

reconstruction and renewal plan is to assign all responsibilities for 1992 and previous years to Equitas. Lloyd's had a total of 34,000 "Names" underwriting business at the time, and 95% of the members who received the solution accepted the proposal. Therefore, all members are required to reguarantee their non-life insurance liabilities in 1992 and previous years to Equitas Reinsurance Co., Ltd. (Equitas Reinsurance Limited,ERL). The premium amount for this reinsurance arrangement is £ 11.2 billion. ERL accepted liability for 1992 and prior years by way of reinsurance in September 1996. At the same time, ERL has also been appointed as the run-off agent for the natural settlement of these responsibilities. These responsibilities were subsequently distributed to Equitas Limited (Equitas Limited) in the form of reinsurance, and ERL also delegated its run-off agent function to the latter.

Equitas started with £ 15 billion net present value liabilities, which are expected to take 40 years to resolve. When it was established, it also had assets equivalent to the 105% of liability, so it is by far the largest start-up company in history. Equitas cannot underwrite new business.

03

In November 2006, Equitas Limited and the National Security Corporation (National Indemnity Company,NICO), a AAA-rated subsidiary of Berkshire Hathaway, entered into a transfer of reassurance and natural termination of liability. Under this agreement, the state guarantee company reguarantees the responsibility of Equitas limited company. Equitas Management Services (Equitas Management Services Limited) transferred to Berkshire Hathaway Group and changed its name to Resolute Management Services (Resolute Management Services Limited,RMSL), taking over the run off agency business.

The transaction is implemented in two parts. In the first phase, NICO provided Equitas $5.7 billion in reinsurance coverage on top of the March 31, Equitas2006 reserve. The reinsurance agreement took effect on March 31, 2007, marking the completion of the first phase of the transaction.

04

, the residual liability (whether closed or not), Equitas reinsurance protection, and NICO's reinsurance protection insured by names and some of Lloyd's subsidiaries that have been reinsured in 1992 and previous years are transferred to a newly established special purpose company in accordance with Part VII rules of the Financial Services and Markets Act 2000 (Part VII transfer), equitas Insurance Company Limited (Equitas Insurance Limited). Equitas Insurance Co., Ltd. purchased further reinsurance coverage of US $1.3 billion from NICO.

On June 25, 2009, the British High Court ordered the approval of the transfer, which meant the completion of the second phase of the transaction. This transfer covers all the business of ERL reinsurance in 1996, as well as the business of PCW Syndicate previously provided by Lioncover Insurance Company Limited and the business of Warrilow Syndicate provided by Centrewrite Limited.

came into effect on 30 June 2009, meaning that under English law and EEA law, members are no longer responsible for their underwriting obligations at Lloyd's in 1992 and prior years. From the effective date, Equitas Insurance Company Limited will be deemed to have underwritten all businesses from the beginning and will be fully responsible for these businesses.

05

Equitas is a core part of Lloyd's's reconstruction and renewal plan. Through a series of Equitas arrangements, Lloyd's has greatly reduced the proportion of long tail liability in the event of a crisis in its own existence, resulting in a significant improvement in its reserve situation. By setting up a firewall, especially the seventh part of the statutory business transfer, it is ensured that Lloyd's members will no longer be responsible for their underwriting responsibilities in and before 1992 from 1993.

, however, there are still two uncertainties about the firewall set up by the Equitas.

First of all, although the Equitas currently believes that it has sufficient assets to pay compensation liability, if the subinsurance protection provided by NICO is insufficient, Equitas will not be able to fully pay off the liability, and Lloyd's will be responsible for the difference in accordance with the relevant commitments given at the time of the transfer in Part VII.

second, in order to be allowed to underwrite certain types of american business, the laudd syndicate must collectively deposit regulatory capital in the united states. Transfers under Part VII are not automatically recognized in the United States, and the United States court may decide that Lloyd's members who originally covered these policies are still responsible for these policies. If the Equitas fails, U.S. policyholders may seek compensation from regulatory capital deposited in the United States. If this happens, Lloyd's will need to consider using central funds to compensate for Equitas deficiencies or to supplement its regulatory capital in the United States in order to continue underwriting U.S. operations.