Debt purchase

Slow or non-moving reinsurance debt can create a liquidity crunch for insurers in addition to the financial penalties imposed by most regulators, by way of solvency loading/mandatory write downs. We have been at the forefront of resolving these issues for insurers, providing them with liquidity and leaving our team of debt specialists to realise the asset value.

We have historically purchased reinsurance on a non-recourse basis, with the seller having no further interest in the transaction once they receive cash and assign the debt to Cavell.

As part of our constant drive for innovation, we have developed Reinsurance Finance Management Limited (RFML), a bank financed facility to deal with major debt positions on a recourse OR non-recourse basis.

RFML provides liquidity to the London international insurance marketplace through:

• The acquisition of reinsurance receivables (including outstanding losses and IBNR in certain instances)
• Collection of debts on a contingency fee basis
• Commutation of reinsurances on behalf of clients.

As part of the Randall Group, RFML has significant resources at its disposal in Europe and USA, as well as business partners in Asia, Australasia and South Africa.

A new approach to debt purchase

Talk to us about recourse debt purchase, in which the seller shares with RFML in any profit made on the transaction. We also offer the more traditional forms of debt purchase.

A new approach to contingency collections

On some occasions we have agreed to collect reinsurance for a contingency fee based only on that part of the debt the client did not expect to collect, i.e. based on the amount greater than the client had in its books net of a bad & doubtful debt provision.

A new approach to commutation

RFML's sister company, Cavell, is the organiser of three Commutations Rendez-Vous, in Norwich (UK), Cologne (Germany) and New Jersey (USA). As such it has an unrivalled breadth of connections across many reinsurance markets at the personal level that is most effective in the commutation environment.

A new approach to debt purchase

The amount of time and effort required to collect debts from reinsurers, especially on old underwriting years, leads to more and more debt being written off by cedants who do not have the resources or expertise to collect the money due. And yet the sums involved can be significant when looked at across a portfolio of reinsurance arrangements.

By taking an assignment of the debts involved, RFML leaves the cedant with as small an administrative burden as possible and takes over the risk of non-collection. There is a due diligence process at the outset, and supporting documentation will be required from the cedant, but after that it is over to RFML, allowing the seller to focus all its effort on core activities.

Another aspect of debt purchase or assignment is that any legal action required to enforce the debt would then be in the name of RFML, not the original cedant.

Recourse debt purchase
Under recourse debt purchase, if RFML collects more than the amount paid for the debt, the profit is shared with the original cedant in a pre-agreed proportion. The recourse element of the process relates to the fact that RFML can re-assign the debt to the seller if collection proves to be impossible but, in the meantime, the seller will have had cash in a bespoke bank account (a performing asset) instead of an asset of reducing real value.

Traditional debt purchase
At RFML we also offer to buy certain debts once and for all. There is no pre-agreed process for RFML to assign the debt back to the seller but, on the other hand, the seller would not share in any profit made by RFML.

A new approach to contingency collections

On specific reinsurance recoveries or across a portfolio of reinsurances RFML will work on a no-win no-fee basis. We will use our technical experience and our contacts across many international markets to accelerate recoveries, by commutation where appropriate, and will earn our fees only as percentages of amounts recovered for the client. If it means getting on an aeroplane to chase a debt, the cost will rest with RFML.

In specific instances it might be possible to set our fee as a percentage only of the amount beyond what the client has in its books as a likely recovery from that reinsurer. This is the sort of thing best covered at a meeting between us.

A new approach to commutations

In the field of commutations nothing works better than personal contact between the parties concerned. For many years Cavell Management Services has had a reputation for being pro-active in the commutations arena, even to the extent of organising what are recognised as the world's pre-eminent events for the promotion and completion of commutations (see: www.commutations-rendezvous.com for more details). At each Rendez-Vous delegates travel from all over the world to Norwich, Cologne or New Jersey to take advantage of the efficiencies of the Rendez-Vous process. In two or three days delegates can come face-to-face with counter-parties from up to 17 different countries (based on past registrations) and yet only have to make one trip (to the Rendez-Vous venue).

The breadth of personal contacts Cavell/RFML has built up since 1997, when the Norwich Rendez-Vous started, puts us in a position other companies can only envy when it comes to designing and carrying out commutation strategies for our clients.

Using experienced teams based in the UK and USA, RFML will proactively contact all counter-parties, whether cedants or reinsurers, to put your commutation strategy into effect. Over the years we have come to know the sort of reporting clients find most useful and a full reporting procedure will be agreed with the client before any work takes place.