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Highway Insurance Agency Limited

Fri 06 Sep 2002

Cessation of syndicates, affecting syndicates 37 and 2037

On 2nd September, 2002, Highway Insurance Agency Limited (‘HIAL’) notified the Council of Lloyd’s and members of syndicates 37 and 2037 of its intention to cease to accept new and renewal business on behalf of its managed syndicates 37 and 2037 with effect from 31st December, 2002.

The Highway Insurance group includes an insurance company, Highway Insurance Company Limited (‘HighCo’), a Lloyd’s corporate member subsidiary, Highway Corporate Capital Limited (‘HCCL’) and HIAL. HIAL manages two Lloyd’s syndicates (‘the syndicates’): syndicate 37, the capacity of which is provided entirely by third parties; and syndicate 2037, a single member corporate syndicate whose capacity is provided entirely by HCCL. Syndicates 37 and 2037 are underwritten in parallel. The syndicates and HighCo write all Highway business under co-insurance arrangements.

The capacity of syndicate 2037 for the 2002 year of account is £52.1m, representing approximately 23% of Highway’s total 2002 capacity. The capacity of syndicate 37 for the 2002 year of account is £7.4m, representing approximately 3% of Highway’s total 2002 capacity. Syndicate 37’s 2002 capacity dropped to this level from £63.2m (which represented approximately 21% of Highway’s capacity for 2001) at the end of last year as a result of a large number of names leaving the syndicate at a late stage in the coming-into-line process.

As far as the Highway Insurance group’s own underwriting of Highway’s business is concerned, it has now been decided to effect a transfer of the underwriting currently conducted by HCCL through syndicate 2037 to HighCo at the end of this year (subject to obtaining necessary regulatory approvals). The principal reasons for this (in addition to the lower regulatory cost and avoidance of mutuality advantages which were the drivers for the establishment of HighCo in the first place) are as follows:

HCCL’s risk based capital requirement for the 2003 year account, should it continue to underwrite through syndicate 2037, would be in the region of 55% (a 57% increase in the current 35% requirement). By contrast HighCo’s current regulatory solvency capital requirement is approximately 50%, and this figure is set to reduce to approximately 35% from 1st January, 2003; the financial and accounting advantages for the group of conducting all of its Highway business through HighCo on a one year accounting basis (including the ability of the group’s shareholders more easily to compare the group’s results with those of Highway’s major competitors in the company market).

If HCCL ceases to underwrite and syndicate 2037 ceases, the economic viability of syndicate 37 will become highly questionable. If syndicate 2037 were to cease, syndicate 37 would have to bear additional costs (mainly audit and actuarial costs) in the order of £140,000, which, if the capacity of the syndicate for 2003 were to remain at its current level, would amount to approximately an additional 2% of capacity. Correspondingly, if the 2003 capacity were to reduce below its current level as a result of more names leaving the syndicate, the costs as a percentage of capacity would be even higher.

A cash payment of 7p in respect of each £1 of 2002 capacity has been offered to the 2002 members of syndicate 37 by way of compensation for their loss of rights and interests in the goodwill associated with the Highway business if the cessation is implemented, the transfer of syndicate 37’s participation in the Highway business (and of the goodwill associated therewith) to our fellow Highway Insurance group subsidiary, HighCo, which will take place as a consequence of the implementation of the cessation means that its implementation may nevertheless constitute a breach of our duty as managing agent to act in the interests of such members and not to allow our personal interest to conflict with our obligations to them under the managing agent’s agreement.

All members of syndicate 37 (other than those who are members by virtue only of their participation in a MAPA) and their members’ agents are entitled to make written representations to the Council about the intended cessation within the 21 day period ending on 23rd September, 2002.

Date issued: 06 September 2002

Contact information

Agency contact: Andrew Gibson

Contact number: +44 (0) 1277 266576

For auction office use only: D2002030

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