Analyse and advise on the UK government’s contingent liabilities
The Contingent Liability Central Capability (CLCC) is an analytical and advisory unit within UK Government Investments (UKGI). The CLCC has been established to strengthen contingent liability expertise within government and improve how government manages its portfolio of risk from contingent liabilities.
What is a contingent liability?
A contingent liability represents a government commitment to possible future expenditure if specific conditions are met or unforeseen events occur, such as loans guarantee (where government agrees to pay the debts of a third party if they default, such as the Export Development Guarantee (EDG) schedule run by UK Export Finance) and indemnities (protection similar to insurance where government agrees to cover costs such as clinical negligence claims against NHS GPs).
Contingent liabilities are a significant source of fiscal risk to government. HM Treasury introduced a new approval framework in July 2017 which requires contingent liabilities that are novel, contentious or repercussive and have a maximum exposure of over £3 million to be evaluated according to five criteria: rationale; exposure; risk and return; risk management and mitigation; and affordability. The framework has been featured by both the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) as an example of international best practice in the management of government guarantees.
Contingent Liability Central Capability (CLCC)
The CLCC assists departments and arms-length bodies with assessing, quantifying and pricing risk from contingent liabilities, allowing departments and government to better understand the scale and distribution of their risk exposure from contingent liabilities. The team comprises actuaries seconded from the Government Actuary’s Department (GAD), credit risk experts, policy professionals and analysts.
Since its inception in April 2021, the team has assisted with over 50 new contingent liability proposals, established the cross-government Contingent Liability Advisory Network, begun working with selected departments to review their existing contingent liabilities and developed initial plans for future data collection across government. Going forward the team will continue to focus on building its presence and developing relationships with key contacts within government.
Departments we have worked with so far:
Siobhan Duffy
Director
Siobhan Duffy joined UKGI in 2021 to lead the Contingent Liability Central Capability (CLCC), an analytical and advisory unit set up to strengthen contingent liability expertise across government.
Prior to joining UKGI, Siobhan spent over 25 years working in debt capital markets structuring and advising European corporates on debt issuance. During her career, she has held several leadership roles, including global head of private placement at NatWest Markets/ RBS and, prior to that, head of private debt at ABN Amro. Most recently, she established a debt distribution platform for London Bridge Capital, an independent corporate finance firm.
Outside of UKGI, Siobhan is involved with St Mungo’s supporting a London based Outreach team working with street sleepers.
Alexander Richarz
Executive Director
Alexander joined UKGI in June 2021 to lead the credit branch in Contingent Liabilities Group. Prior to that, he had an over twenty-five-year international career in commercial and investment banking at Deutsche Bank, CIBC and Credit Suisse. He has significant experience in corporate and leveraged finance gained in front office origination, loan portfolio management, and credit risk management. Prior to joining UKGI he was heading the corporates team in credit risk management at Credit Suisse. He holds a master’s degree in economics.
Aidan Smith
Executive Director
Aidan joined UKGI in February 2021 to lead the insurance branch in the Contingent Liabilities Group. Aidan is on secondment from the Government Actuary’s Department. Aidan has over 20 years’ experience at GAD providing actuarial advice to the public sector, covering insurance, social security and pension arrangements. From 2015 to 2020 Aidan was GAD’s Head of Technical and Professional, responsible for technical and professional practices across the department.
Key objectives:
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Review and report on existing contingent liabilities
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Provide advice and analysis on new contingent liability proposals
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Promote best practice across government
Exploring the UK government’s contingent liabilities
This progress report from the CLCC summarises what has been achieved since its establishment in 2021 and sets out plans for the future.
The report describes what contingent liabilities are and why it is imperative that these risks are well understood and managed. It uses the analysis and projects undertaken by the team to set out what has been delivered over the past year and how we plan to work with departments to achieve our vision for the coming years.
Exploring the UK government’s contingent liabilities
30 June 2022 2 MB
CLCC Guidance – Estimating losses for Guarantees and Indemnities
This document is part of a series to provide guidance to departments regarding the establishment and management of contingent liabilities.
This guidance will help government departments in estimating losses for financial guarantees and indemnities, principally when completing the HMT checklist for contingent liabilities, but also outside of the checklist process when a department would like to better understand a particular risk exposure.
This note should be read in conjunction with the high level guidance for filing in the checklist in the Contingent Liability Approval Framework and Managing Public Money (Annex 5.4)
CLCC Guidance - Estimating losses for Guarantees and Indemnities
14 July 2022 481 KB
Case Studies
Department for Business, Energy & Industrial Strategy (BEIS) – Nuclear related incidents
In the highly unlikely event of a nuclear related incident, government has responsibility for third party liabilities. On 1st January 2022, the 2004 Protocols came into force which amend the rules embedded in the 1960 Paris Convention and the 1963 Brussels Supplementary Convention relating to nuclear third-party liability international conventions. As a result, an increased level of compensation is available to victims.
The 2004 Protocols increase the operator liability in the event of a nuclear incident from the current €140m to a maximum of €1.2bn over a period of 5 years and extend the period for which claims can be made from 10 to 30 years.
At present there is insufficient commercial capacity to insure this risk completely. Therefore, the government has agreed initially to provide an indemnity, for an economic charge, to operators to cover increased personal injury liabilities for the 10 to 30 year period.
The CLCC, using loss estimates provided by GAD, advised BEIS and HM Treasury on practical ways of dealing with these contingent liabilities, including fair allocation of risk and reward between private sector insurers and the government.
Foreign, Commonwealth and Development Office (FCDO) – Clean Green Initiative
During COP26 (2021 United Nations Conference on Climate Change), the UK launched the Clean Green Initiative to help developing countries take advantage of green technology and grow their economies sustainably. The Clean Green Initiative includes a package of guarantees to support clean infrastructure projects.
The CLCC provided specialist advice and expertise in structuring and managing guarantees and supported the FCDO in delivering their package of guarantees. This included the India Green Guarantee to support clean and resilient infrastructure in
sectors such as clean energy, transport and urban development and the Room to Run guarantee scheme to unlock financing capacity from the African Development Bank for projects across the Africa.
Our expertise was able to support the FCDO in achieving its goals to scale up public and private investment in sustainable infrastructure globally.
UK Space Agency – Insurance and liabilities for the space industry
The government committed to review key concerns and proposals raised by respondents to UK Space Agency’s consultation on insurance and liability requirements for the space industry.
The CLCC is working with UK Space Agency and their actuarial advisors from the Government Actuary’s Department to develop these policies, providing views on structuring liabilities, insurance provision, and analysis of risk.
Specifically, the CLCC is advising on the in-orbit operator liability limit in relation to potentially reducing insurance requirements and liability limits of satellites in orbit. This would be achieved by replacing the fixed liability limit with a variable one, using a number of risk criteria to determine a limit which reflects the specific risk in each case.
The CLCC is also helping to explore alternatives to traditional third-party liability insurance to cater for various spaceflight related risks, including what the impacts of alternatives to traditional insurance could be on the insurance market and the space sector.