Benfields slash travel
Posted on May 3, 2008
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Benfields spends some £20m per annum on travel and entertainment. Orders have come from on high that brokers are to cut back on travel and have “video conferences” with clients and contacts overseas instead (The Times).
While one can appreciate the need to economise, I somehow doubt that video conferencing is going to be a helpful way to generate much-needed new revenue.
They aim to save £15m over 2 years.
I suggest sandwiches for top execs’ lunches, too. And no alcohol. I mean, look what it’s done for Boris.
RMP -v- Brent: What the decision means
Posted on April 28, 2008
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On April 22nd 2008 Lord Justice Stanley Burnton handed down his judgment in R (on the application of Risk Management Partners) –v– the Council of the London Borough of Brent [2008] EWHC 692 (Admin).
LAML, who were an interested party in the case, say that the court threw “out claims from the private sector that councils are acting beyond their designated powers”.
In fact the Court found the very opposite—Brent had no power to establish or participate in LAML, to become a member of it, or to make a paid up or guaranteed capital contribution to LAML either under section 111 of the Local Government Act 1972 or section 2 of the Local Government Act 2000.
The Court granted RMP a declaration to that effect and ordered Brent to pay RMP’s costs of the claim.
LAML go on to say that “Harrow Council was also named in the case, but no finding of ultra vires was made against Harrow”. Like LAML, Harrow was merely an interested party in the case, not a defendant. The reason no finding was made against it—or against LAML— is because their actions were not the subject of this claim for judicial review.
LAML also claim that “the Judgment states that authorities do have powers, pursuant to well-being powers under s2 of the Local Government Act 2000 to join LAML.” That is simply incorrect. The judge said no such thing.
What he did find was that if a local authority bases its decision to enter LAML on what savings it might make on its insurance premiums then its decision will be unlawful under the “well-being” power in s.2 Local Government Act 2000 (paragraph 114 of the judgment). In that regard, it is worth noting that LAML continues to broadcast its primary message to authorities, that “it aims to save its growing membership up to 15 per cent per annum on their insurance premiums over the next five years”.
The only other comments by the judge in respect of the section 2 well-being power were made obiter and without having heard argument: “I think that a local authority could pursuant to its well-being power enter into a contract with a company for the provision of advice as to the avoidance of damage to property in its area through fire or accident, or for the avoidance of accidents to persons living or working there. In other words, a local authority could purchase what has been referred to as risk management services.” If so, he thought, it could contract with the company for the provision of such services and insurance, and provide guarantees and financial assistance to the company for that purpose pursuant to section 2(4).
But whatever the merits of these views expressed obiter, the simple fact is that LAML is not such a company: its principal object is to provide insurance for London local authorities. It is no part of LAML’s objects to provide risk management services in respect of property or persons living or working in any particular local authority area generally. And neither are the capital contributions required by LAML to meet the FSA’s requirements for its business, which is insuring local authorities themselves, made for such purposes.
Finally, it may be noted that LAML sought permission to appeal against the very judgment that it now claims is a “vindication of LAML’s actions”.
Local authority insurance: Big News
Posted on April 22, 2008
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I just had a big win on a case of major importance in its field. Here is the press release. A more detailed analysis will follow:
Local authorities not authorised to act as insurers
In a landmark case, the High Court has found that Brent LBC had no power to participate in LAML, a mutual insurer for London borough councils.
It has further found, in principle, that no local authority can participate in such a mutual if it does so solely to save money on its insurance. In obiter comments, the judge held that there might be circumstances in which an authority could do so, but that there was no evidence that LAML could bring itself within those circumstances.
Risk Management Partners (RMP), a company providing insurance services to local authorities, pursued a test case against Brent after Brent abandoned an EU-regulated public procurement process and awarded the contract for its insurance services to the London Authorities Mutual Limited, LAML, outside the tender framework.
LAML and Harrow, who were in a similar position to Brent, joined the action as Interested Parties. Since no relief was sought against them, no finding was made specifically against them.
Lord Justice Burnton (as he now is) focused on the “fundamental difference between…participation in LAML and normal commercial insurance”. Brent were not only buying insurance; they were providing insurance to others. Rather than simply paying a premium for cover, Brent had also paid a £160,500 capitalisation charge to the mutual and more importantly taken on potentially unlimited liabilities to LAML in the event of future shortfalls.
The judge found that Brent had “speculated on its success as an insurance company”. He held that the provision of insurance to others was “not incidental to the discharge of any function of a local authority” and thus fell outside the scope of s.111 of the Local Government Act 1972.
Brent further failed in their case on s.2 of the Local Government Act 2000, the so-called “well-being” power, despite that section being very widely drafted. The mere fact that Brent expected to save money on its insurance premiums did not, without more, justify its actions and it therefore had no power to become a member of LAML.
As a result of this decision, there may be questions about the effectiveness of Brent’s insurance with LAML for the 2007—2008 year.
The parties still await judgment on a related yet equally important issue: RMP say that Brent had to follow EU-mandated rules and go to open competitive tender for the business; Brent rely on the so-called Teckal exemption to say that LAML effectively operated as an in-house function of Brent and hence that it was allowed to side-step the procurement process.
RMP’s Kaz Janowicz said
“While we are relieved at the Court’s findings we take no great joy from the decision. Our sole aim in this action has been to get a level playing-field. For us, the real part of the case comes when the decision on Teckal is given. We are happy to compete with LAML, or indeed, anyone—all we ask is an equal opportunity to do so.”
RMP were awarded their costs in full. Brent, Harrow and LAML were granted leave to appeal.
You can read the judgment online. Note especially paras. 93 and 110 (on the s.111 arguments), para. 114 (on s.2) and para. 120 (on some potential exceptions to the basic principle-see esp. the last 5 lines for the facts in this case).
Risk Management Partners
-v-
The Council of the London Borough of Brent
London Authorities Mutual Limited
The Council of the London Borough of Harrow
Neutral citation: [2008] EWHC 692 (Admin)
Piracy & human rights
Posted on April 15, 2008
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–Begin Daily Mail rant–
More ridiculous politically-correct nonsense from HM Government (following the Abu Qatada debacle). This time, according to the Times:
THE Royal Navy, once the scourge of brigands on the high seas, has been told by the Foreign Office not to detain pirates because doing so may breach their human rights.
Warships patrolling pirate-infested waters, such as those off Somalia, have been warned that there is also a risk that captured pirates could claim asylum in Britain.
The Foreign Office has advised that pirates sent back to Somalia could have their human rights breached because, under Islamic law, they face beheading for murder or having a hand chopped off for theft.
Poor lambs.
The French showed a little more backbone recently. Their equivalent of the SBS first got the hostages freed, then went into Somalia and not only captured the kidnappers–members of the so-called “Somali Marines“–but also got the ransom monies back.
–end Daily Mail rant–
Insolvency & reinsurance recoverables
Posted on April 14, 2008
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Reinsurance assets will more easily be accessible to foreign liquidators in multinational insolvency proceedings following the House of Lords’ decision last week in the long-running HIH saga.
Their Lordships found that English courts should co-operate “as much as possible” to ensure that the assets of bankrupt companies based abroad are distributed among creditors under a single system.
HIH went under in 2001 with estimated debts of up to $5.3 billion.
The court ordered the English assets of several HIH companies–largely reinsurance contracts written in London–to be sent to Australia for distribution by liquidators.
The English courts should, according to their Lordships, cooperate with other jurisdictions unless the transfer of assets would prejudice the rights of international creditors. Accordingly, requests to transfer English assets to foreign liquidators are from now on likely to granted unless there is some good reason not to do so.
KPMG give a short precis of events, the issues and what it means in practical terms for HIH now (basically, not much).
PEMEX reform
Posted on April 14, 2008
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This week, the Mexican parliament will debate an energy reform bill that aims to change the way that PEMEX, the state-owned oil monopoly, operates.
Right of centre president Felipe Calderón introduced the bill which aims
- to allow PEMEX greater managerial and financial autonomy
- to provide a role for the private sector in the construction and operation of refineries as well as transportation
- to allow PEMEX to work with the private sector in the development of oil fields in deep waters, where Pemex has neither the money nor the expertise to explore but where it believes most of the country’s reserves lie.
The long-term goals are to increase a declining production and to ensure sustainability.
Mr Calderón pointed out that Pemex now produces 300,000 fewer barrels per day (bpd) than it did three years ago. The lost value, he said, was equivalent to almost $10bn, more than three times the budget of Oportunidades, the government’s extreme-poverty alleviation programme. At the same time, proven reserves have plummeted 27 per cent since 2002, and now stand at just 9.2 years’ worth of production at current rates. Given the time involved in oil exploration, that is alarmingly low for a country with such potential, experts say.
The opposition are crying foul and saying that Calderón wants to privatise PEMEX, a delicate topic given its hallowed nature in the Mexican national weltanschaung.
Source: FT
One also hopes that it will do something to curb the corrupt practices rife in sectors of the industry. I have been involved in three major cases involving Mexican oil and to say that some actions and decisions have been “questionable” would be charitable in the extreme.
New case on disclosure & privilege
Posted on April 3, 2008
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In the recent case of Expandable Ltd. v. Rubin, the Court of Appeal has held that mere mention of a letter does not automatically waive legal professional privilege.
The judgment, given by Rix LJ, went to two points. First, had the letter been “mentioned” for the purposes of CPR 31.14; second, if it was so mentioned, did that amount to a waiver of privilege.
Their Lordships found that the letter was ‘mentioned’, noting that the test was not intended to be an onerous one, the word ‘mention’ being as general as could be (see paras 18ff of the judgment).
However, the Court was not satisfied that the mere mention of a document provided for the automatic and absolute waiver of its privilege; this would be a significant departure from previous jurisprudence with no good explanation. Privilege is a fundamental right that cannot be overridden by general words, and Rix LJ quotes Lord Justice Hoffman (in R v. Secretary of State for the Home Department, ex p Simms [2000] 2 AC 115) on the point:
“Fundamental rights cannot be overridden by general or ambiguous words…In the absence of express language or necessary implication to the contrary, the courts therefore presume that even the most general words were intended to be subject to the basic rights of the individual.”
Financial fraud on the rise
Posted on March 13, 2008
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Between 2004 and 2007, fraudulent applications for financial products rose by 25% (to 77,000). In 2007 one in five of those was successful.
The Credit Industry Fraud Avoidance System (Cifas), which conducted the study, pointed to two drivers for this. First, inexpensive, high-quality printing technology has made it easier for people to fake supporting documents, such as passports, bank statements and utility bills. Second, and plainly more recently, the credit crunch has meant that banks are looking more closely at people with unhealthy credit histories, so these people are resorting actively to fraud to circumvent the new more rigorous checks (which should, of course, always have been in place).
Further,
The age of those making false claims has also decreased and is now 35 for men and 33 for women. This, Cifas believes, is proof that individuals in the UK are getting into financial difficulty at a younger age.
(Source: FT)
Schad & Freud (in Uganda)
Posted on March 11, 2008
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Following revelations of Mr Spitzer’s own alleged “irregular dealings” there is no little sense of satisfaction on Wall Street at his probable demise:
One might call it Shakespearian if there were a shred of nobleness in the story of Eliot Spitzer’s fall. There is none. Governor Spitzer, who made his career by specializing in not just the prosecution, but the ruin, of other men, is himself almost certainly ruined
writes the WSJ, in an article that cannot quite keep the glee out of its reporting. According to the FT “as the news broke, cheers were heard on the New York Stock Exchange floor”. I can imagine it.
Be interesting to see if he can extricate himself from this.
Rented suits
Posted on March 8, 2008
Filed Under General, News, Reinsurance | Comments Off
In his 2008 letter to shareholders, Warren Buffett has a charming little story about the problems of IBNR and the known unknowns (ahem):
We also include a large reserve for losses that occurred before yearend but that we have yet to hear about. Sometimes, the insured itself does not know that a loss has occurred. (Think of an embezzlement that remains undiscovered for years.) We sometimes hear about losses from policies that covered our insured many decades ago.
A story I told you some years back illustrates our problem in accurately estimating our loss liability: A fellow was on an important business trip in Europe when his sister called to tell him that their dad had died. Her brother explained that he couldn’t get back but said to spare nothing on the funeral, whose cost he would cover. When he returned, his sister told him that the service had been beautiful and presented him with bills totaling $8,000. He paid up but a month later received a bill from the mortuary for $10. He paid that, too – and still another $10 charge he received a month later. When a third $10 invoice was sent to him the following month, the perplexed man called his sister to ask what was going on. “Oh,” she replied, “I forgot to tell you. We buried Dad in a rented suit.”
It’s a good story, and I’m reasonably certain that more suits will turn up for Berkshire. Possibly a lot more. In fact…oh better not.
Mr Buffett also goes on to make some scathing (well, insofar as he ever gets that scathing about anything) comments about financial salesmen and their proclamations about the future value of pension investments in particular. Basically, to continue the last century’s performance, the DOW would have to rise to 24m by 2100. Which, as he says, appears a trifle unlikely. See page 19 of the letter in particular.
Finally, returning to the insurance world, Buffett asks us all to note that in 2007:
…our insurance business – the cornerstone of Berkshire – had an excellent year. Part of the reason is that we have the best collection of insurance managers in the business – more about them later. But we also were very lucky in 2007, the second year in a row free of major insured catastrophes.
That party is over. It’s a certainty that insurance-industry profit margins, including ours, will fall significantly in 2008. Prices are down, and exposures inexorably rise. Even if the U.S. has its third consecutive catastrophe-light year, industry profit margins will probably shrink by four percentage points or so. If the winds roar or the earth trembles, results could be far worse. So be prepared for lower insurance earnings during the next few years. [my emphasis]
Sorry, there should be more commentary here, but I just can’t really top what Buffett says.
keep looking »