Several years ago, I wrote about the potential impact of Solvency II regulation on run-off London Market insurers. Since then, the two insurers I highlighted (Stronghold and CX Re) have been declared insolvent. Fortunately for policyholders, we have not seen a deluge of many more London Market run-off company insolvencies.
It was in this context that I read with interest a recent Insurance Journal article on the UK’s plan to ease Solvency II restrictions that it inherited from the EU. The changes are expected to free up almost $130 billion worth of capital and allow insurance companies more flexibility in investment strategies. The changes from the EU standard are possible because of the 2020 Brexit.
One of the underlying lessons of our 2018 analysis still holds: who owns a run-off company matters a great deal. Both Stronghold and CX Re were small insurance companies lacking large, actively underwriting insurance parents. Increased capital restrictions, among other developments, left them with little ability to return to health. Parental support (or lack thereof) also matters for U.S. run-off insurers, with Bedivere’s liquidation being a prime example of what can go wrong. U.S. companies have new opportunities to divest run-off business with Insurance Business Transfer (IBT) laws in Rhode Island, Oklahoma, and other states.
Respondents to PwC’s 2021 Global Run-Off Survey predict significant transactional activity in the coming years, so we will continue to monitor major run-off transactions. It remains to be seen if this will be a movement towards established run-off managers, or if new players in this space will emerge.
Never miss a post. Get Risky Business tips and insights delivered right to your inbox.
Nick Sochurek has extensive experience in leading complex insurance policy reviews and analysis for a variety of corporate policyholders using relational database technology.Learn More About Nicholas