17 August 2006
Sydney, 17 August 2006: An Australian first to facilitate faster settlement of reinsurance claims has just received court endorsement.
Yesterday's Federal Court approval of the NRG schemes of arrangement clears the way for other Australian reinsurers to adopt 'run-off reinsurance schemes' according to Clayton Utz partner Nicholas Mavrakis.
"The scheme allows all cedants' claims against the reinsurer to be settled and paid much sooner than through its usual claims settlement process. This enables cedants to achieve finality in the claims process more cheaply without protracted litigation and the reinsurer to achieve cost savings through not having to administer their claims book over a long period." said Mr Mavrakis.
"Schemes overcome a major issue for reinsurers who are not writing new business" said Clayton Utz partner Michael Parshall. "APRA requires them to have their capital tied up for long periods while the claims have wound down over sometimes a thirty to forty year period. To be able to close down their book of business inside a year, frees up their capital for other opportunities".
Run-off schemes are common in the UK. However, until yesterday's decision by the Federal Court, there had never been a solvent scheme that dealt with Australian reinsurance liabilities.
Part of the reason for this, according to Clayton Utz insurance partner Peter Mann, is the caution of the insurance industry watchdog, APRA.
"APRA is understandably cautious. An important aspect of NRG's strategy, therefore, was extensive engagement with APRA to reassure them that the process was fair and equitable."
Part of the reason that APRA agreed with the NRG schemes, Parshall adds, is that the NRG scheme involved re-insurance policies, rather than direct insurance and the reinsurance business had been in run-off for some period.
"APRA's consent to and the Court's approval of the NRG schemes mean that the Australian market is well placed to deal with old reinsurance claims in an efficient and effective manner like the UK market. It gives reinsurers a real choice to transferring their old claim portfolio or the company itself to a third party to run-off."
