David Schieldrop, Managing Director and Global Co-Head of the Insurance Investment Banking Division of Barclays, Sylvain Villeroy de Galhau, EVP of AXA Liabilities Managers, and David Alberts, Partner at Mayer Brown, shared their insights on the current marketplace for buying and selling runoff business. The consensus of the panel was that market conditions – including downward pressure on premium, low interest rates, and the availability of alternative capital – are ripe for increased opportunities to buy and sell run-off business in 2015. The panel further noted that demand is outpacing supply in this market.
The panel also provided an overview of the respective market forces that motivate the counterparties to the purchase and sale of a run-off book. For their part, sellers seek to alleviate regulatory pressure, solvency pressure, and resources pressure, and to recognize the book value of their business. On the buyers’ side, there is now more money invested in run-off, there are new entrants in the marketplace, including private equity funds that are expressing interest in the sector, and buyers of run-off books are increasingly able to manage those books effectively.
Buyers seeking to purchase a run-off book should understand the business plan and administration for that book, as well as the nature of the liabilities, the asset mix, the ability to extract capital, how to structure the transaction in order to separate the book from its parent (that is, whether the transaction will involve the sale of an entity or a reinsurance arrangement), and tax and regulatory implications. In selecting a buyer, sellers may focus on price (although price may not be the primary driver of the transaction), the creditworthiness of the potential counterparty and collateral, the counterparty’s track record with regulators, claims and operations, and, in closing deals, the potential ease and speed of execution of any deal that may be reached, the ramifications on outward reinsurance, human resource issues, and the reputation of the buyer (particular if the seller will have ongoing relationships with any policyholders in the book being sold).
In sum, the panel opined that, in 2015, one would see more activity in the runoff market, including both buy-to-kill deals and retro reinsurance arrangements.
Refer to page 31 in the Summer 2015 issue for article. https://www.airroc.org/assets/docs/matters/airroc%20matters%20summer%202015%20vol%2011%20no.%202.pdf