Malta insurer claims solution to collateral-locked capital

Gavin Bradshaw 23/08/2010

A Malta-ba

sed insurance company has claimed it can free up capital which remains ‘locked up’ in captive insurers’ collateral arrangements.

Grafton (Europe) Insurance Company (Grafton Europe) was established in Malta in December 2009 to service the whole insurance market, following research conducted by Marsh last year.

“Grafton was designed to help risk managers and captive managers write more business in their captives by ‘cleaning’ it of prior years’ liabilities,” said Caspar Gilroy, chairman of The Grafton Group, the ultimate parent of Grafton Europe.

The company has been rated A- (Excellent) by AM Best who have also recognised the company as the “first participant in its market”.

According to Martin South, CEO of Marsh UK the research it conducted “showed that many companies have substantial capital supporting legacy liabilities”.

“In the current economic environment, this capital could often be more usefully employed elsewhere. Our research has been borne out by the significant interest expressed in the Grafton offering,” he said.

According to Gilroy, the new company takes on liabilities from all classes of business once they have reached three to four years in age, in order to ‘clean’ the captive and create finality on any potential liability that may arise from prior years.

“As a result, Grafton frees up capital supporting the captive which can be redeployed in the captive to write more business or returned to the corporate parent,” he said. “Once it has taken on prior years liabilities, this creates a long-term relationship with the corporate.”

The company is expecting to launch a similar venture in the US later in the year, where Gilroy estimated the amount of collateral currently tied up in this way is “in the tens of billions of dollars”.

Grafton’s current UK clients are largely UK FTSE 100 & FTSE 250 companies. While the Group has historically been focused on run-off business, Gilroy says Grafton Europe is seeing more interest from captives that are continuing to operate and wanting to write new business in their captive rather than those that are already in run-off or going into run-off.

“Up to now there hasn’t been any economically viable alternative to a commutation with the fronting insurer and now there is,” he said.

Grafton Europe is supported by a 50% Quota Share from Berkshire Hathaway’s National Indemnity Company. The parent company also numbers Robert Hiscox (pictured above), chairman and CEO of specialist insurer Hiscox, among its board members.

Tags: Berkshire Hathaway, Collateral, Legacy liability, Malta, Prior years liabilities, Robert Hiscox

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Malta insurer claims solution to collateral-locked capital

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