The US insurer Penn Treaty American Corporation has announced that it has agreed binding terms for a final settlement agreement in its dispute with Imagine International Reinsurance Limited.

Earlier this year Penn Treaty said that two of its subsidiaries provided notification of breach to Imagine for its failure to provide the requisite level of collateral in the form of letters of credit (L/Cs) pursuant to Imagine's obligations under its reinsurance agreement (DC World News, 25 August 2008).

The deal

The settlement means that Penn Treaty will not have to pay expenses and risk charges to Imagine beyond the first quarter of 2008 for its primary reinsurance treaty or beyond the second quarter of 2008 for its secondary treaty.

Penn Treaty believes that it would have otherwise been obligated to pay expenses and risk charges through the end of 2008 on the primary treaty and potentially through the third quarter of 2010 on the secondary treaty.

L/C release

Penn Treaty reckons the value of these fees to be approximately US$14.5 million.

In exchange, Penn Treaty has withdrawn its notice of intention to arbitrate and will release approximately US$112 million in supporting L/Cs on 1 December 2008, which would otherwise have been released on 1 January 2009. Penn Treaty will not draw upon the L/Cs.

Final settlement

Imagine and Penn Treaty and have also agreed to waive any future contractual or non-contractual claims relating to the treaties other than those relating to the settlement agreement itself.

Penn Treaty anticipates that a final settlement agreement will be reached on 14 November 2008.

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