Back by popular demand, AIRROC and Mayer Brown, presented a new episode in the ongoing market drama that portrays the evolution of dynamic options for creating value out of “has-been” books of business. Building on last season (June 2018), a stellar cast of players in the Runoff Market — some new faces, some returning from last season, brought the market scene to life. They discussed key plot arcs including: the scope of the market, the motivation of the main actors in this space, the opportunities presented by heightened competition from newer players, the influx of alternative capital sources, and evolving regulation. Spoiler alert: here is a list of plot developments:
- Run-off is now “sexy”. Companies do not suffer as much “reputational risk” as once perceived. There is a greater acceptance of runoff reinsurers as more companies are participating in the market.
- Capital is capital, not “alternative capital”; it is an omnipresent option because of the investment opportunities in the runoff sector.
- The reasons for doing a runoff transaction are important in defining the scope and determining the methods to be employed. The potential goals are: reduction in required capital and reserve volatility, realization of embedded discount, potential claims savings, and reduction in operating expense.
- Whereas a buyer’s “credit risk” used to be an important consideration, the market has solved that problem through collateralization. The most popular form is “reinsurance trust accounts”.
- Captives and Corporations are now trying to exit retained risk; with increased knowledge of how to use the runoff market to do so, they can take advantage of the current expertise and tailored options available.
- There are now 10 states in the US with restructuring legislation (Rhode Island, Vermont, Oklahoma, Arizona, Connecticut, Georgia, Illinois, Iowa, Michigan and Pennsylvania). Oklahoma’s 2018 Insurance Business Transfer Legislation which applies to all lines of business is viewed as the broadest. The first deal in Oklahoma is in the works and many interested parties are waiting to see how it plays out.
This AIRROC event provided an information-packed snapshot of the heightened deal drama in the Runoff marketplace. (Members can access the slides on the AIRROC website).