Business Transfer Scheme

Background

Euler Hermes UK Plc

EHUK is a UK authorised insurance company which has permission under Part IV of the Act to carry out contracts of general insurance (falling within classes 1-2 and 14-17 of Part I of Schedule 1 of the Financial Services and Markets Act 2000 (Regulated Activities Order) 2001 (the "RAO") as principal.

Since 1 January 1975 EHUK has underwitten credit insurance business. On 1 July 2010 EHUK accepted a transfer of surety bond buisness from Euler Hermes Guarantee Plc under Part VII of the Act. Since 1 July 2010 EHUK has written new bonding business on its own account.

The objective of the Transfer is to effect a legal transfer of all the credit insurance and surety bond business underwritten or assumed by EHUK to EHB which is a far larger concern than EHUK.

Euler Hermes Credit Insurance Belgium SA (NV)

EHB is a Belgian general insurance company authorised by the NBB and FSMA. EHB has authorisation from the NBB and FSMA to conduct credit and suretyship classes of general insurance and has applied for authorisation to conduct the miscellaneous financial loss class. EHB is in the process of establishing a branch in the UK from which it will conduct the business included in the Scheme from the date the Scheme becomes effective.

Rationale for the Transfer

EHUK and EHB are both part of the Euler Hermes Group (the "Group") of which the holding company is Euler Hermes S.A., a company incorporated in France. The Group currently operates in Europe via a large number of insurance companies. The Group has recently examined its operations in Europe with a view to enhancing its efficiency and optimising its structure and having regard to the requirements of the European Parliament and Council Directice in the taking up and pursuit of the business of Insurance and Reinsurance ("Solvency II").

The Group now intends to reorganise its insurance underwriting platforms in Europe by consolidating its 10 major risk carriers into 3 strongly capitalised risk carriers based in France, Germany and Belgium. The reorganisation will facilitate greater capital efficiency by rationalising the number of separate insurance underwriting platforms the Group has in Northern Europe and reducing the number of intermediate holding companies. The reorganisation will also achieve efficiencies in terms of management and administrative costs.

In addition to the Scheme, EHUK and EHB are also entering into a cross-border merger under the Companies (Cross-Border Mergers) Regulations 2007 (the "Proposed Merger") under which EHUK will effectively be absorbed by EHB. The legal effect of a cross-border merger is to transfer all assets and liabilities to the absorbing company. A cross-border merger also has the effect of dissolving the company being absorbed without a liquidation. EHUK will therefore cease to exist on the date on which the Proposed Merger and the Scheme become effective.

Transferring Business

The business that it is proposed should be transferred to EHB (the "Transferring Business") comprises all the credit insurance and surety bond business currently carried on by EHUK and comprises principally:

(a) credit insurance policies taken out by UK and some overseas businesses against non-payment of undisputed trade debts incurred through the provision of goods or services on short-term credit, typically up to 90 days, and from 1 April 2011, long-term credit, typically up to 7 years (which may include an element of political risk cover)

(b) conditional guarantees and on-demand bonds guaranteeing the performance of construction contracts on behalf of contractors;

(c) bonds issued to local authorities as security for the performance of planning obligations under the Planning Acts in the United Kingdom and Ireland;

(d) other miscellaneous bonds guaranteeing the performance of various types of contracts; and

(e) a small amount of "fronted" credit insurance business whereby EHUK reinsures the primary risk carrier in various jurisdictions.

If you are in any doubt as to whether your policy is included in the proposed Transfer, please contact the transfer helpline, details of which are set out in the "Contacting Us" section of this website.

Court Approval

The Scheme will require the approval of the High Court of Justice of England and Wales (the "Court"). An application has already been presented to the Court for approval of the Scheme, and the application is due to be heard on 8 December 2011. As required by the Act, an independent expert, Mr Gary Wells of Milliman, Inc, (the "Independent Expert") has been appointed to prepare a report on the Scheme and its effect on policyholders and policyholder security. The appointment of the Independent Expert and the form of his report on the Scheme (the "Report") have been approved by the Financial Services Authority.

Copies of the Scheme, the Report and a statement setting out the terms of the Scheme and containing a summary of the Report (the "Explanatory Circular") can be found in the "Download Documents" section of this website.

Effect of the Scheme

A summary of the principal terms of the Scheme is set out at Appendix 1 to the Explanatory Circular which can be found in the Download Documents section of this website.

In broad terms, the effect of the Scheme is that EHUK's rights and obligations arising under the policies, surety bonds and the surety bond facilities comprising the Transferring Business will be transferred to EHB without alteration. Any rights you have under such policies, bonds and/or facilities will remain unchanged but will, following the Transfer, be exercisable against or owed to EHB alone. Valid claims will continue to be paid in full, although the party liable to make payment will be EHB, rather than the entity which originally issued the policy, bond and/or facility.

Key Dates

7 September:

Hearing for Directions

26 September:

Explanatory Circular (containing a summary of the terms of the Scheme and a summary of the Report) is dispatched to policyholders affected by the Scheme, brokers and reinsurers. The website goes live and copies of the Scheme, Report and Explanatory Circular are posted on the website.

26 September:

Notice of the proposed Transfer is advertised as directed by the Court.

8 December:

Final hearing to sanction the Scheme.

** Update **

On 8 December 2011 the Court sanctioned the Scheme which will give effect to the Transfer. Copies of the Order of the Court and Advertisement of Sanction can be found in the “Download Documents” section of this website.

31 December:

The Scheme will take effect on the date on which following the making of an order by the competent authorities in Belgium, the Proposed Merger becomes effective. It is anticipated that this will be 31 December 2011.

Download Documents

© 2011 Euler Hermes UK plc
Authorised and regulated by the Financial Services Authority
Euler Hermes UK plc - Registered in England & Wales No. 149786 at 1 Canada Square London E14 5DX