FOR IMMEDIATE RELEASE: 25 June 2004

MARC MAYERSON COMMENTS ON

EQUITAS’S ANNOUNCED FINANCIAL RESULTS FOR YEAR ENDED 31 MARCH 2004

Marc S. Mayerson, a partner with the Washington, D.C., law firm of Spriggs & Hollingsworth, www.spriggs.com, where he leads its national practice representing corporate policyholders seeking recovery under insurance policies they’ve purchased, reviews the Press Release dated 8 June 2004 from Equitas concerning its financial results as of 31 March 2004 and its Reports and Accounts for 2004 (released in late June but dated 3 June 2004). As is well known, Equitas Ltd. manages the run off of liabilities under insurance policies issued by underwriters at Lloyd’s, London, prior to 1993, and these policies are exposed to paying for liabilities of US companies for certain asbestos, environmental, and other “health hazard” claims of injury or damage that occurred in the period of their coverage.

Equitas’s press release confirms that the accumulated surplus of Equitas has been reduced to ₤460 million, down ₤67 million the year before.

Equitas has liquidated approximately 85% of its total reinsurance receivable.

Equitas notes that its gross undiscounted asbestos reserves have increased to ₤4.0 billion (increased by ₤296 million).

According to its figures Equitas’s solvency margin improved to 9.8% from 8.7%.

Of particular note, according to Mr. Mayerson, are the following:

· Equitas’s Chief Executive Officer, Scott Moser, candidly acknowledged that, when assureds agree to policy buyouts (whereby they liquidate and extinguish all rights to coverage under policies issued by Lloyd’s underwriters prior to 1993), one key factor driving the pricing for those assured is “eliminating credit risk” (Release p.2; Report p. 5) – that is the credit risk of Equitas’s being unable to pay claims. Nevertheless, in a typical example of Equitas double-talk, footnote 1 to Equitas’s financial statements proclaims, “The Directors believe that the assets should be sufficient to meet all liabilities in full” (Report p. 33) (emphasis added). While Equitas represents to policyholders that there is substantial credit risk, to their auditors Equitas represents the opposite.

· Equitas acknowledged that its claims settlements with policyholders were for an amount nearly ₤100 million less than the book value of the claims. (Release p.8) In other words, Equitas paid ₤97 million less to its assureds than the amounts Equitas reserved for their future stream of claim payments. As we have seen upwards adjustments annually to Equitas’s asbestos reserves for the past several years, if one were to assume that next year Equitas again “strengthens” its reserves, the underpayment to its assureds in fact will turn out to be greater than the ₤100 million in savings Equitas acknowledged this year. (Last year, Equitas acknowledged freeing ₤142 million through settlements with its assureds for less than the reserved values, but its current release does not indicate the appropriate upward adjustment of the “savings” from the prior year’s settlements, given that, even considering those policy buyouts, Equitas was constrained to increase its asbestos reserves again.)

· Equitas’s analysis of the proposed US asbestos-reform legislation showed that its passage would have resulted in Equitas’s risking becoming insolvent. That Equitas views the legislation’s passage as risking its own solvency calls into the question its ability to meet the asbestos-coverage claims of its US assureds.

· Equitas’s major asbestos deals this past year vest in it the right to a refund, or reduction in its future payout obligation, of ₤400 million, in the event federal asbestos-liability reform legislation passes. Equitas does not explain whether it takes this contingent asset into account in its financial statement or in its analysis that passage of the legislation may result in its insolvency.

· Equitas has commuted (liquidated) more than 85 percent of its potential reinsurance recoverables. (Report p. 6) As a result, Equitas is unable to justify its oft-invoked statements to policyholders that unless they demonstrate syndicate information on their Lloyd’s coverage Equitas is unable to make any payment; though this position had some equitable force when Equitas needed such information to facilitate its own outward reinsurance recoveries, that those recoveries have been received already via commutations means that Equitas’s need for this information has correspondingly diminished. Given that Equitas was itself able to achieve commutations without knowing each particular assured’s allocation of liabilities to particular policies, Equitas cannot equitably contend that it should pay nothing with respect to a policy that is known to cover a certain dollar amount but as to which syndicate-participation information is lacking.

· Equitas balances the candid admission of its underpaying its own assureds with the exhortation to its policyholders to settle their claims with Equitas: “If you are being told that you cannot do a fair deal with Equitas, you need new advisers.” (Release p.3; Report p.11) Equitas plainly believes that “fair” deals are at less than its reserve levels for the claims released and are priced against the threat of Equitas’s insolvency.

· The impact of Equitas’s insolvency, however, must be offset against the financial structures undergirding the original sale in the US of policies through Lloyd’s. There are US based trust funds, as well as the “old” and “new” Central Funds and possibly the full capital resources of Lloyd’s current membership, that are part of the “chain of security” backing Lloyd’s underwriters’ policies. For example, according to the 2004 Report, there is in excess of ₤2.5 billion in US and Canadian trust funds “for the settlement of claims relating to those jurisdictions.” (Report p.40). A policyholder’s right of recourse to these monies, however, is released in policy settlements with Equitas.

For further information or comment, please contact Marc S. Mayerson, 202.898.5877 or mmayerson@spriggs.com.