9 November 2015Commentary on Municipal Mutual Limited June 2015 Accounts
MMI recently published their accounts on the 30 June 2015. Within the commentary provided by the Scheme Administrator there are a number of important points which we wish to highlight to you.
MMI have now collected the 15% Levy (99.8% of the amount due from Members) and this has been physically paid as at 30th June 2015. As a consequence of the Levy, members of the Scheme of Arrangement are now self-insured to the extent of 15% of any future claim payments.
Commentary on June 2015 Accounts
Within the 2015 accounts, Gareth Hughes (Scheme Administrator) has stressed the company’s position has deteriorated further since the imposition of the 15% levy and that more detailed investigations are commencing in the second half of this year. The current accumulated loss on the balance sheet amounts to £114.6m.
In MMI’s 14/15 accounts, they highlight mesothelioma and abuse claims as the key contributors to the deterioration during the year. However, from our own records, we have seen anecdotal evidence from many clients that a significant number of new claims related to noise-induced deafness have been reported to MMI within the last 12 months alongside the mesothelioma and abuse claims mentioned by the Administrator in the communication.
Due to the latent nature of many claims, their actuaries’ projections are subject to substantial uncertainty and it was not possible to guarantee that the initial Levy percentage of 15% would remain sufficient. Indeed the speed of deterioration over the past year is indicative that a further Levy will be required in the near future and it is likely that the mid-range of the estimate for remaining liabilities projected by the actuaries at KPMG has increased materially.
The Administrator has explicitly indicated that he anticipates that it may be necessary to raise a further Levy in future. The accumulated loss on MMI’s balance sheet at the time of publication of the accounts implies that a further Levy of approximately 20% would be required to extinguish the loss.
However it is difficult to anticipate the potential timing of the additional Levy as the Scheme Administrator indicated that further investigations are necessary regarding the abuse claims and that there are changes in management of investments that need to be completed.
MMI have indicated that Scheme members must continue to make future claim payments themselves in the first instance, having received authorisation from the claim handlers, and then seek 85% reimbursement from MMI.
Arthur J. Gallagher Recommendations
In view of the current claims management process, you will need to continue to ensure that reserves incorporate the ability to pay from own funds due to the time lag between those claims paid in full by the council and the time taken to receive re-imbursement of the 85% from MMI in respect of those settled claims.
Based on the current accounts of MMI (June 2015), we would recommend that all our clients continue to reserve for an additional 35% Levy going forward and based on the councils own individual statement as at March 2015. That is to say we are maintaining a view consistent with that we have expressed over the past few years. This would provide for an eventual 50% Levy. We anticipate an 18 month to 3 year time horizon for formal requests for payment to be issued to creditors for any increased levy. This is purely an external view and not based on any communication with the Administrator.
We do recognise that this 50% figure is higher than the 20% projected within the June 2015 accounts to extinguish accumulated losses plus the 15% levy collected to date. However, in our view, there is potential for MMI’s position to continue worsening with increased abuse and mesothelioma claims but also with the noise induced deafness.
Each council should continue to review their own individual liability to MMI as the total claims are of course dependent upon the councils own historic experience.
Please note that the simple approach to the calculation of an 20% additional Levy to extinguish the accumulated loss as at 30th June 2015 is not an actuarial projection of the ultimate claims liability using full actuarial techniques and methods. It does not therefore constitute an independent actuarial opinion of the ultimate liability of MMI based on the same data set used & seen by the actuaries commissioned by the Scheme Administrators.
For more information please get in touch with your usual Arthur J. Gallagher representative or contact us on 0800 6123 641 or email email@example.com
Download the Municipal Mutual Limited Update.pdf