Towergate has set aside up to £85m in potential redress costs for past recommendations made by its Towergate Financial advice business on enhanced transfer values and unregulated collective investment schemes.
The insurance group’s preliminary financial results for last year revealed that the independent file reviews for both investigations are ongoing and it is in continued talks with the Financial Conduct Authority.
Customer contact, which will be a key factor in determining the extent of the group’s redress obligation, is expected to commence during this quarter and to be phased over an aggregate period of three years.
Payments expected to start in the third quarter, once the relevant customers have been contacted and the redress methodology has been agreed.
“Given the number of material uncertainties that continue to exist, it is not yet possible to make a reliable estimate of the group’s ultimate liability in connection with these investigations,” read the statement.
“However, purely for the purposes of developing business plans and cash flow projections for the group, Towergate has adopted a range of £65-£85m in potential redress costs for ETV and Ucis in aggregate, excluding costs and expenses.”
The maximum recoverable amount under insurance arrangements is £12m in addition to costs, although the ultimate extent and timing of any recoverability remains uncertain.
This follows on from the FCA’s thematic review, published last year, which people who were offered enhancements to incentivise them to leave their employers’ defined benefit pension schemes had received poor advice.
The FCA added that it is planning to follow up the findings of its thematic review of the ETVs market by contacting individual financial advisory firms that have given bad advice to ask them to contact members and offer redress where appropriate.
Meanwhile, Towergate Insurance entered into a binding agreement with its senior secured creditors to implement a financial restructuring and recapitalisation of the group, which should mean substantial de-leveraging of the capital structure and give additional liquidity resources.
The agreement received the unanimous approval of the board’s restructuring committee and more than of 70 per cent of the group’s senior secured creditors.
However, discussions between senior secured and senior unsecured creditors are ongoing to determine the terms on which the latter may participate in the restructuring, so further announcements are expected.
Under the terms of the agreement, senior secured creditors will convert all of their existing claims into £375m of new senior secured notes, £150m of subordinated payment in kind notes and 100 per cent of the ordinary shares of the new holding company for the group.
Following the transaction, net senior debt will be reduced by more than 60 per cent.
The process of identifying a new chief executive to succeed Mark Hodges, who resigned in October last year, will now be resumed, with Mr Lyons continuing for the time being.