The five Kwelm companies face claims estimated at dollars 5bn ( pounds 3.3bn) but have assets of only dollars 600m-dollars 700m. Part of the deficit will have to be met by other British insurers after the recent Law Lords' ruling that the Policyholders' Protection Board must pay claims to many individual North American policyholders.
The provisional liquidators, Chris Hughes and Ian Bond, of Coopers & Lybrand, intend by the end of August to publish the scheme of arrangement which will allow dividend payments to creditors. If the scheme receives the backing of 75 per cent of creditors at a November meeting, an initial dividend will be paid next year. Mr Hughes said the PPB was potentially the largest creditor. It funds its payments by a levy on British insurers.
The Kwelm companies - Kingscroft, Walbrook, El Paso, Lime Street and Mutual Reinsurance - wrote US liability insurance. This included professional indemnity cover for accountants, architects, doctors, engineers and lawyers.
Last month's Law Lords ruling entitled many non-corporate policyholders to make claims on the PPB, much to the dismay of British insurers. The Association of British Insurers has estimated this will cost the industry about pounds 250m. Mr Hughes said he would not be surprised if the eventual cost was higher. Some believe the total bill will reach pounds 500m.
The Kwelm companies are subsidiaries of London United Investments, the formerly quoted insurance group under investigation by the Department of Trade and Industry and the Serious Fraud Office. Colin Forsyth, an LUI director, recently complained to Michael Heseltine, President of the Board of Trade, about the seeming lack of progress with these inquiries.
The provisional liquidators have recovered or secured dollars 280m. They are still seeking money from more than 600 reinsurers.
The long-term nature of liability insurance means that paying claims could continue for more than 20 years. Kwelm Management Services has been set up to handle the run-off.Reuse content