Falling liabilities creates better environment for sale or float

Heath Lambert's (HLF) exposure to film finance litigation could be over in the next year, removing a potential obstacle to a future sale.

HLF group chief executive David Margrett told Insurance Times its worst case scenario was steadily improving.

The broker disclosed last year that film finance lawsuits could theoretically cost it up to £280m. The figure was produced during the due diligence process for an IPO that was pulled at the last minute as a result of stock market volatility.

The ultimate liability had since fallen to £236m.

Margrett said that the entire amount was protected by the group's own insurance and added that favourable court decisions were reducing the ultimate liability.

"[The figure has] moved downwards since the [IPO] prospectus was published," he said. "We think that these things will get settled in the next 12 months or so."

Cases in California, New York and London all revolved around the same root cause with "an underwriter who's lost a lot of money and a bank trying to collect that money," Margrett said.

Industry commentators have speculated that its film liabilities have created difficulties in finding a buyer for HLF.

Margrett argued that film finance liabilities were "not significant" and had not prevented Merrill Lynch from sponsoring last year's IPO.

But a reduction in the liability could help the group attract new investment or a sale.

Margrett declined to comment on reports of acquisition talks between HLF and Marsh, but confirmed his wish to repay his investors with some liquidity.

He said: "Whether that's through a public offering, bringing in new investors from a financial background or doing a transaction through a merger or sale remains to be seen."

His strategy was to develop the businesses considered core to the London operation and export them to Heath's international offices.

He confirmed that, as reported in Insurance Times, he was examining options for the US business, but denied there was a major move underway to sell off non-core businesses.

"We are always restlessly looking for ways to move the group forward," he said. "It is not part of a specific exercise that's underway."

Areas for growth included wholesale and complicated insurance and reinsurance, aviation and marine and retail business in which, he admitted, some operations did not have critical mass.

He concluded that he would take the group smaller than its current position as the world's number seven broker if it increased the group's value.

"I don't care which we do as long as we are more valuable.

"Size itself isn't the driver. It's providing what our people and our clients want."