ECGD: SALE OF SHORT-TERM BUSINESS (Hansard, 2 December 1991)

§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Reay)

I am pleased to confirm that the sale of the short-term business of ECGD, hitherto conducted by the Insurance Services Group, was successfully concluded yesterday, 1st December, following negotiations between Government and NCM, the preferred purchaser.

As a result of the privatisation, a new group of companies has been established. The credit insurance activities of the group will be undertaken, with immediate effect, by NCM Credit Insurance Limited, a fully capitalised company which has been duly authorised by the relevant UK authorities to undertake such business. Publicity and customer information for the privatised business will be carried forward by the new group.

The sale negotiations were conducted on a basis which provides value for money for the taxpayer. The sale will be examined by the National Audit Office in due course. The sale price was £70 million, comprising £50 million for the capitalisation of the business, plus a goodwill payment of £20 million. £5 million of this goodwill element is payable on a deferred basis, subject to the future performance of the insurance company. If the loss ratios for the first two years of underwriting in the private sector are at least as good as those projected when tenders were submitted, the full balance of £5 million will be payable. If the loss ratios for these years are not as good as those projected, the balance of £5 million will be subject to downward adjustment. The deferred element will be payable in 1996 after the accounts for the first two underwriting years are closed. The amount of the deferred element will be indexed to the retail price index so as to preserve its present value.

Under private sector ownership the new group will be able to offer a more efficient and flexible service, including domestic credit insurance facilities. It will not be vulnerable to the risk of legal challenge which would have remained for as long as the business had been conducted by a government department. The new owners, NCM, are specialist credit insurers who were selected as preferred purchaser following a competitive tendering process against a range of criteria including commitment to, and understanding of, the business and financial robustness, as well as tender price.

The vast bulk of Insurance Services' risk portfolio—political as well as commercial risks—has been successfully placed in the private sector reinsurance 2WA market. This is a major achievement. As already confirmed to Parliament, the Government are providing the company with some limited transitional reinsurance facilities to "top up" private sector reinsurance capacity plus a separate "national interest" facility to maintain a measure of cover for the small number of higher risk markets for which cover is not currently available from the private sector. This "national interest" facility will be kept under close review and will remain available for as long as necessary to meet the reasonable needs of exporters, subject to its satisfactory financial performance.

ECGD will, of course, continue as a separate government department, the main activity of which will be the provision of facilities for medium and long-term export credit on projects and capital goods exports. These facilities will not be affected in any way by the sale to NCM of the Insurance Services Group.