Balva wound-up over capital adequacy concerns
Decision does not yet amount to an 'insolvency event' under SRA rules that would force firms to seek alternative cover within four weeks
Latvian insurer Balva is to be wound-up after its financial regulator withdrew all its operating licences yesterday, potentially forcing all UK law firms with Balva policies to secure alternative cover within four weeks.
On 1 March, Balva was stopped from signing up new professional indemnity insurance in the UK after concerns that it was in breach of regulatory requirements.
Concerns over the unrated insurer's business in the UK legal sector prompted Latvia's Financial and Capital Market Commission, on 16 April, to ban the insurer from writing any new business altogether.
The day before, the Solicitors Regulation Authority had written to all 1,300 UK firms with Balva policies, saying firms did not need to be concerned.
But yesterday the Financial and Capital Market Commission said Balva had "failed to carry out the necessary improvements", was "incapable to ensure fulfillment of the regulatory requirements" relating to provision levels and capital adequacy, and should be forced into liquidation.
Balva remains bound to meet contractual obligations with existing clients, with all insurance policies officially still effective and enforceable.
But the news could put further pressure on firms considering switching insurer later this year to rush into alternative unrated providers.
Only yesterday the Law Society reported concerns over firms with Balva policies being offered insurance with another unrated insurer, Berliner Versicherung, by the broker who used to sell Balva policies.
At present however, the Latvian commission's decision does not amount to an 'insolvency event' under SRA indemnity insurance rules. This would require all firms with Balva policies to seek alternative cover within four weeks.
Firms that fail to find an alternative insurer would drop into the assigned risks pool (ARP), the SRA said.
The regulator said it had asked the Latvian authorities for further information and was "seeking advice on the application of the definition of 'insolvency event' to this developing situation, working with our partners at the Financial Conduct Authority and the Prudential Regulation Authority".
"If an 'insolvency event' occurs we will contact all firms currently insured with Balva explaining the action they must take," the SRA said.
In the meantime, the SRA is advising firms with Balva policies to contact their brokers or get in touch with a qualifying insurer.