IRB-Brasil Resseguros, Re: High Court sanctions Part VII transfer of legacy reinsurance book

The High Court has sanctioned an insurance business transfer scheme moving the entire UK branch business of IRB-Brasil Resseguros S.A. to Community Reinsurance Corporation Limited, in a judgement handed down by Mr Justice Mellor in the Companies Court.

The scheme, sanctioned under section 111(1) of the Financial Services and Markets Act 2000, transfers approximately 38,066 policies held by around 830 transferring policyholders. The business consists of general reinsurance contracts written by IRB's UK branch between 1974 and 1983 across marine, aviation, property and casualty lines, all placed in the London market through Lloyd's accredited brokers. The branch suspended underwriting in December 1982 and the transfer will allow it to de-authorise and close entirely.

As of 31 December 2023, the transferring business carried gross and net claims reserves, including incurred but not reported claims, of approximately US$32.84 million across 2,298 outstanding claims. The business is fully reinsured by Carrick Re Limited under a loss portfolio transfer reinsurance agreement, meaning the scheme's principal effect is to align legal liability to policyholders with the economic liability already held within the Carrick group. Community Re is a subsidiary of Carrick UK Holdings Company Limited, part of a Bermuda-based group specialising in non-life legacy insurance and run-off, which was acquired in January 2024 by Northlight QIAIF, an Irish regulated entity managed by London-based Northlight Group LLP.

The judgement records that the scheme's path to sanction was not entirely smooth. TIG Insurance Company initially objected, raising concerns through Dentons about discrepancies between reserve figures cited by the Independent Expert and TIG's own claims, the adequacy of Community Re's capital over the long tail of the exposures, and a perceived deterioration in service standards since the Carrick group's involvement. TIG's objection was supported by an analysis from Kevin Madigan of FTI Consulting, which questioned the data available on the portfolio, the treatment of asbestos liabilities and the allowance made for one specific large loss.

The Independent Expert, Simon Sheaf of Grant Thornton, addressed each point in an update to his supplementary report, concluding that the level of data available was typical for a portfolio of this vintage and that established actuarial techniques remained capable of producing a reasonable estimate despite the inherent uncertainty of asbestos exposures. He also noted that a deed subsequently entered into between Carrick Group Ltd, Carrick and Community Re, providing access to up to $10 million in additional capital in the event of an adverse development, if anything benefited transferring policyholders. TIG and the Transferor ultimately resolved their dispute and the objection was withdrawn before the sanction hearing, though TIG remains a cedant under the transferred contracts.

Neither the Prudential Regulation Authority nor the Financial Conduct Authority objected to the scheme or sought to be heard, each concluding in their respective reports that it fell within the range of fair and reasonable outcomes.

Applying the framework set out by the Court of Appeal in Re Prudential Assurance Company Limited, Mellor J emphasised that the court's central task was to assess whether the scheme carried any material adverse effect on affected policyholders' security or service standards, according full weight to the conclusions of the Independent Expert and Regulators in the absence of any identified error or inadequacy in their reasoning. Having scrutinised those reports and heard submissions from Andrew Thornton KC for the Applicants, Mellor J found no such defects and was satisfied that the scheme should be sanctioned, along with ancillary orders made under section 112.