Writ issued by Ageas demands £5m plus interest following alleged overvalue in 2010
Ageas has accused Kwik-Fit of an accounting blunder that led to its insurance arm being overvalued by £17.5m when Ageas bought it.
Ageas is suing Kwik-Fit for £5m plus interest, the recently released details of its writ show. Ageas paid £215m for Kwik-Fit Insurance Services in July 2010.
Before the sale, Kwik-Fit Insurance Services had entered into upstream contracts with insurers, which meant that it paid insurers the premium and recovered the amount from the customers, it is claimed.
Customers were allowed to pay premiums in instalments, and pending amounts due were called ‘debts’. To improve its cashflow, Kwik-Fit Insurance Services entered into a debt purchase facility with Barclays Bank, which purchased Kwik-Fit Insurance Service’s debts at a discount.
The writ says the deal did not include ‘bad debts’ - policies where the customer has not paid sufficient direct debit payments up to the date of cancellation.
Kwik-Fit Insurance Services wrongly believed that Barclays had assumed liability for the ‘bad debts’ and that these could be re-charged to the bank for accounting purposes, it is alleged.
The writ says: “As the claimant now understands, both Kwik-Fit Insurance Services and [sister company] The Green Insurance Company wrongly accounted for
the aforesaid portion of the bad debts in a manner which reflected their common misapprehension as to the operation of the Debt Purchase Facility Arrangement.”
Ageas alleges that the error led it to over-value Kwik-Fit Insurance Services by £17.5m, but contractually it can now only claim £5m. Ageas is demanding 8% interest on the £5m, at £1,095.89 per day.
Ageas and Kwik-Fit declined to comment. When Insurance Times requested defence documents, none was available.
Pass notes: Kwik-Fit
Why did Ageas acquire Kwik-Fit?
Ageas bought Kwik-Fit Insurance Services for £215m in July 2010. The deal added 600,000 customers with 1.2 million policies, while managing director of Kwik-Fit Insurance Services Brendan Devine moved over to Ageas. Ageas was tempted into making a bid partly because it had worked in partnership with Kwik-Fit.
How is Kwik-Fit Financial Services, as it is called by Ageas, performing?
Profits in the retail division, containing Ageas’s broking businesses RIAS, Kwik-Fit Financial Services, Ageas Insurance Solutions and Castle Cover, rose 94% to £34.3m (2010: £17.6m).