28 August 2018

The following are potential frequently asked questions about the solvent Scheme of Arrangement (“Scheme”) being proposed by Stronghold Insurance Company Limited (the “Company”).  If you require further information, please contact the Company using the information below:

By post:           Stronghold Insurance Company Limited

    46 Rose Lane

    Norwich, NR1 1PN

    United Kingdom

Contact:          Andrew Gregory, Chief Executive Officer
By e-mail:
By phone:       +44 (0)7801 968 033

1.  Why have you contacted me?

The Company is required to communicate with all potential Scheme Creditors about the Scheme.  You may or may not have any claims against the Company.  To determine whether you do have a claim against the Company, you should review your records and/or consult with your professional advisors.

2.  What is a Scheme?

A Scheme is a court approved agreement between a company and its creditors which, if approved at a vote by a majority in number of creditors representing at least three quarters (i.e. 75%) in value and sanctioned by the court, is binding on all creditors.

3.  When / how can I read the Scheme?

The Company will be circulating the Scheme document (and Explanatory Statement) to potential Scheme Creditors after the First Court Hearing in October.  In addition, the documents will be available to download on this website under the heading Scheme Documents.

4.  What is the effect of the Scheme?

If the Scheme is approved at the vote of Scheme Creditors, and then by the Court, the main outcomes of this Scheme will be:

  • early payment of Scheme Claims including agreed, discounted outstanding loss reserves and IBNR;
  • reduced run-off costs over the remaining life of the Company; and
  • to facilitate the end of the Company’s run-off and allow the Company to be wound up.

Essentially, for policyholders and cedants, the Scheme will represent a full and final commutation with the Company.

More information on the advantages and disadvantages of the Scheme will be detailed in the Explanatory Statement.

5.  Why is Stronghold proposing a Scheme?

Since the implementation of the European Union’s Solvency II directive in 2016, the Company has been unable to meet either the Solvency Capital Requirement or the Minimum Capital Requirement despite remaining solvent under UK GAAP.  The Company and its shareholders do not have access to further capital.  Entities that do not meet their Minimum Capital Requirements have been encouraged by the UK regulators to produce a plan to bring finality to the Company.  The proposed solvent Scheme is Stronghold’s plan to deliver this finality.

6.  How can the Company be solvent but still not meet capital requirements and have to close before claims fall due in the normal course?

Solvency II prescribes the level of capital that insurance companies must hold.  It does not determine whether or not a Company is currently solvent.  The directive is primarily targeted at companies currently underwriting insurance business but entities in run-off are also required to comply with the regulations.  It is therefore very possible, particularly for a company that is not writing insurance and has not written insurance since before Solvency II came into effect, for that company to be solvent on an accounting basis, but for it not to be able to meet the capital requirements of Solvency II.

Without bringing an end to the run-off (and therefore, by default, waiting to pay claims as they fall due), there is a risk that the Company would face regulatory enforcement action which may put its continued solvency at risk.

7.  What happens next / What is the timeline?

The Company sending the Practice Statement Letter (“PSL”) to potential creditors is the first step in the Scheme process.  It will be followed by:

  • a First Court Hearing – to obtain permission to call a meeting of Scheme Creditors (forecast to be early October 2018);
  • the Scheme Meeting – at which creditors will vote on the proposed Scheme (forecast to be early December 2018);
  • a Second Court Hearing – to sanction the result of the Scheme Creditors’ vote (forecast to be January 2019);
  • the Effective Date – the point from which the formal Scheme process begins and the start of the claims submission period (forecast to be January 2019);
  • the Final Claims Submission Date – six months after the Effective Date, and the date by which claims against the Company must be received (forecast to be July 2019); and
  • the Termination Date – the end of the Scheme, six months following which, the Company will cease to exist.

8.  What do I need to do?

If the UK Court provides leave to convene the meeting of Scheme Creditors at the hearing in October 2018, the Company will send you copies of the Scheme document including an Explanatory Statement.  You will also receive a voting form with instructions to enable you to register a vote at the meeting of Scheme Creditors in December 2018.  You should also consult your professional advisers as appropriate.

9.  Why are you proposing a single class of creditors when some creditors may ultimately not be paid in full?

The Scheme provides for the possibility of two meetings of Scheme Creditors and therefore two possible votes.

Whilst the Company is solvent, all Scheme Creditors will be paid in full and their claims valued using the same methodology.  Scheme Creditors are therefore able to consult together with view to a common interest and hence only form a single class for the purpose of voting on the proposed Scheme.

Should an Insolvency Event occur however, Direct Insurance Creditors and Reinsurance Creditors may not be paid in the same proportion. Therefore, whilst Direct Insurance Creditor and Reinsurance Creditor claims would still be valued using the same methodology, by virtue of receiving disproportionate payments they would be unable to consult together with a view to a common interest.  Accordingly, should an Insolvency Event occur and a second meeting of Scheme Creditors be required, Scheme Creditors would vote on the Resolution in two classes.

10.  I wish to object, how do I do this?

Please write to the Company (although there is no requirement for you to), outlining the reasons for your objection, at the address above. The Company will draw to the Court’s attention any concerns raised by Scheme Creditors which have been communicated, in writing to it, prior to the First Court Hearing.

You are also entitled to attend the First Court Hearing either in person or by Counsel.

11.  Where can I obtain documents from?

A copy of the PSL and the Estimation Guidelines (which describe how claims will be valued in the Scheme) are available from this website under the heading Scheme Documents.  In due course, other Scheme documentation and updates will also be added to the website.

12.  When is the First Court Hearing?

The First Court Hearing, to obtain permission to call a meeting of Scheme Creditors, is scheduled to take place on the 9 October 2018 at the Royal Courts of Justice, 7 Rolls Building, Fetter Lane, London, EC4A 1NL.