The closing educational session of the July 2024 AIRROC Summer Membership Meeting was led by panelists Dareen Amireh, SVP, QBE North America, Charles Collis, Director, Conyers Dill & Pearson Ltd., Allison Tam, Partner, Willkie Farr & Gallagher LLP, Michael Terelmes, Managing Director USA, Compre Group and PK Paran, Partner, Willkie Farr & Gallagher. This session focused on recent trends in the runoff transaction space, including new forms of transactions and the way runoff participants are responding. A video replay of this presentation can be accessed in the AIRROC On Demand Library at https://airroc.memberclicks.net/airroc-on-demand.
The presentation began with a discussion of how the panelists monitor and respond to counterparty risk, particularly in light of recent developments in the industry. The panelists also spoke to how the Bermuda Monetary Authority (“BMA”) is responding to recent scrutiny and issues with counterparty risk. The panelists do not anticipate a significant change in practices at the BMA.
Insight was also provided in how United States regulators are responding to private equity backed runoff transactions. The consensus is that there is significant variation based on the transaction itself and the individual state. For example, new transactions like division and loss portfolio transfers (“LPT”) are multi-year processes, and thus involve significantly more resources and review. Regulators continue to be concerned about the solvency of the reinsurer, as well as the subsequent administration of claims.
The panelists also spoke to the pros and cons of different deal types. Insurance business transfers (“IBTs”), a new kind of transaction, are very inflexible; however, they provide finality. In contrast, reinsurance transactions and LPTs allow the parties to make adjustments if there are issues that arise after the deal. One panelist noted that with IBTs, the seller faces reputational risk after transferring claims handling. Furthermore, there has been a trend in LPTs recently in which the agreement provides significant additional detail about a future IBT. The panelists agreed that the correct deal depends on the needs of the parties, so they can be customized to those needs. For example, a seller could retain claims handling, or in a syndicated deal, the buyers could split claims handling based on respective expertise.
