In January 2018, we launched the eleventh edition of our run- off survey, in conjunction with both IRLA and, for the first time, AIRROC. Our survey was expanded to account for the worldwide nature of the run-off market and estimated the value of the global non-life run-off market to be at least US$730bn. It is no shock that the U.S. dominates the global market by value and, by our estimate, is the site of almost half of the world’s non-life run-off liabilities.
Our Survey covered a wide range of run-off issues. These include the importance of legacy management in the current market, the objectives of run-off participants, as well as the opportunities and challenges they face in pursuing their strategic goals. It is clear that challenges remain for market participants in meeting their objectives. In particular, U.S. respondents cited adverse loss development as their most significant challenge. This is consistent with U.S. carriers remaining very much on the front line of asbestos claims deterioration. Indeed, almost 60% of U.S. respondents highlighted asbestos as the claims type that they were most concerned about. It was interesting to see that European respondents were more concerned about liabilities relating to motor books.
It is clear that the appetite amongst run- off acquirers is buoyant with Survey respondents, indicating a range of factors set to influence the sector. Run-off transactions in 2017 followed the upward trend of deal activity seen in 2016 and early signs indicate that the strong market is poised to continue through 2018. While respondents highlighted Continental Europe as a particularly busy sector for legacy disposals over the next two years, the U.S. has witnessed lots of run-off related activity so far in 2018. This activity includes sellers looking at reinsurance deals, as well as regulatory developments around Insurance Business Transfers, which remain a hot topic, and potential new IBT rules in Oklahoma. This activity reflects the increasing recognition by owners of discontinued insurance business of the benefits associated with pro-active management of legacy liabilities and back books.
Currently the most common type of run-off transaction in the U.S. involves retrospective reinsurance placed over a portion of the back book, covering a number of liability types. Often these will be in the form of an adverse development cover, such as some of the mega deals that were seen last year. Traditional M&A transactions remain a viable exit route for U.S. entities in run-off and, in contrast to some of the retrospective reinsurance mega deals, activity at the smaller end of the corporate entity scale has been vibrant as acquirers look at captives and risk retention groups as well as (re)insurance companies. This activity has been enhanced as the market sees continued interest from a range of investors and new start-up entrants seek to challenge the established consolidators. All of this contributes to the evolving run-off landscape.
In the U.S., there have been well- documented legislative developments in relation to insurance business transfers that potentially provide an alternative to traditional pure reinsurance solutions.
For the full article, refer to page 14 in the Spring 2018 issue. https://www.airroc.org/assets/docs/matters/AIRROC_Matters_Spring_2018_Vol_14_No_1.pdf
