This article was originally published in the Captive Insurance Times, issue number 233 and is republished here with permission.
Carolyn Fahey of AIRROC and James Cameron of PwC UK discuss the current state of the run-off market, and how legacy solutions can be utilised to help insurers take advantage of the hardening market
In the current environment of a hardening insurance market, both insurers and reinsurers are exploring how to best benefit from the run-off process by diverting their capital towards emerging profitable areas through legacy solutions. With this heightened interest in the run-off market, legacy business has seen increased activity on both the sell- and buy-side. Going into run-off is one of several resolution options available to insurers (alternative solutions include portfolio transfer, liability structuring, insolvency and liquidation) in which a company is closed to new business so that liabilities will ‘run off’ over time, while continuing to observe existing contracts.
Run-off is advantageous for insurers because it allows more time to attempt to recover viability and solvency. Since viabilities are often long-tail (meaning risks can emerge over time during an extended settlement period), during run-off insurers are able to exit the market over a longer timeline than banks, as well as being less susceptible to fast-burn failure.