New Fund Will Buy Insurer Subrogation Claims

By Daniel Hays

NU Online News Service, April 28, 10:08 a.m.EDT?Newly-created Subrogation Capital Group, Inc., said ithas commenced a venture that will offer insurers cash up front forauto damage subrogation claims on their books.

The company based in Westport, Conn. said a key part of itsoperation will be the use of a computer model from the claimsadministration firm Subrogation Partners, Inc.

The Group said it plans to follow the launch of its autooperation with a series of other investment funds to focusexclusively on purchasing portfolios of insurance industrysubrogation claims.

Thomas Bryan, a principal and general counsel for inauguralfund, said it is expected to be capitalized in a few months with aminimum of $30 million.

"We expect an equity close the end of June. We already have $25million lined up and have line of credit for $30 million," hesaid.

Mr. Bryan said investors who are involved include "wealthyindividuals, investment bank types and some industry players."

He said the fund would specialize in buying the subrogationrights of automobile-related insurance claims limited to vehiclephysical damage.

The company said the follow-on funds it plans to establish wouldtotal $250 million over the next thirty-six months.

Scott Conant, one of the firm's principals, said: "Through thisfund, we have created unique capital and cash flow solutions forinsurance companies and state insurance funds throughout thecountry.

"Typically, these enterprises carry subrogation claims on theirbalance sheet as receivables, but until now, they have had toendure a lengthy and costly collection process before actuallyrealizing cash payments."

Subrogation claims are filed by insurers against parties whohave caused damage or injury to one of their policyholders whomthey have reimbursed for the loss.

Mr. Conant, a 30-year veteran of the insurance industry and aformer KPMG consultant, said by providing up-front cash paymentsfor portfolios, the Group can offer an alternative remedy toinsurance companies focused on balance sheet and operatingperformance.

The Group "can be an important source of liquidity for companiesfaced with cash flow challenges and capital deficiencies."

The fund's criteria for portfolio purchases will include avaluation process that employs highly sophisticated computermodeling techniques developed by Subrogation Partners, Inc. inFarmville, N.Y., which has been involved for eight years intechnology-based claims recovery services.

Mr. Bryant said the system evaluates the different casesinvolved in a whole portfolio on the likelihood of recovery and theamounts involved and that the group would pay accordingly. As anexample, he said a car hit from behind, generally a non-contestableclaim, would be rated platinum.

Once the portfolio is purchased, "We would essentially assumethe position of the carrier and process them the normal way we donow. He said this generally involved intercompany arbitration ornegotiation. In the one percent of the cases that requirelitigation, the Subrogation Partners firm has a national network ofcounsel it can employ.

Mr. Bryan said the model to be used is "a matrix we've developedin the last year."

"We have used eight years of the recovery company data as a testand its worked out nicely," he said.

Mr. Bryan said there has already been considerable interest froma number of potential "portfolio sellers," and "equally important,we have had an overwhelming response from the banking andinvestment communities. Many of the fund's prospective investorsand strategic partners believe that we have identified a newinstitutional investment asset class."

The fund's Advisory Board is comprised of Joseph Termini, formerNew York State Insurance Department special deputy superintendent;Vincent Mistretta, Sr., former New York State Insurance Departmentexecutive director; Kieran Sweeney, former president and chiefexecutive officer of Arrowhead General Insurance Agency, and LindaLamel, a former College of Insurance president and vice presidentof TIAA-CREF.

Subrogation Partners said it has processed more than $1 billionin claims on behalf of 80 insurance companies and state liquidationbureaus throughout the United States. The firm said the company'smanagement team designed SubroAGS, a Web-based platformtechnology solution to improve work flow processes and returns onsubrogation.

Subrogation Partners is located on the Internet at www.SubroPartners.com