Solvent schemes of arrangement
Until 2006, solvent schemes were the dominant mechanism available to insurers to achieve finality in respect of segments of their inwards policyholder liabilities. Solvent schemes remain an important means of accelerated closure and the system adopted in the UK is used as a model in certain other jurisdictions, but the approach is not generally favoured in the USA.
A Solvent scheme is in effect an enforced commutation. Creditors, having voted on the proposed terms of a Solvent scheme, submit their claim forms to the scheme administrator. Claims are evaluated and, in the event of a dispute, adjudicated upon and payments made in accordance with the scheme rules.
Various issues arise in relation to questions of equity between creditors and shareholders and between difference classes of creditor.
In addition, where settlements are made in respect of contingent liabilities (IBNR in particular), the scheme has an estimation problem and potential difficulties in recovering related reinsurance assets.
James, Brennan & Associates has acted in a variety of capacities on behalf of both Scheme proponents and opponents. As proponent we have acted as Independent vote valuer, Scheme adjudicator and Scheme actuary.
See also Reinsurance optimization and structured commutation transactions.
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