Surveys > The ARC/KPMG UK Life Run-Off Survey 2006
08 September 2005
Trapped capital increases, according to survey
- Capital tied up in UK life run-off has increased from £11.5 billion to £14.5 billion
- Capital tied up in UK non-life run-off has increased from £4 billion to £4.8 billion
London, October 4, 2006: Whilst the overall size of the life and non-life insurance markets has remained stable, the size of the capital tied up in run-off has increased appreciably to £14.5 billion in life (£11.5 billion in 2004) and £4.8 billion in non-life (£4.0 billion in 2004).
These are the findings of the UK Run-Off survey – Life and Non-Life Insurance 2006 – a survey produced annually by KPMG LLP (UK), and commissioned by The Association of Run-Off Companies Ltd (‘ARC’).
UK run-off market – life assurance
The figures show that the total policyholder liabilities of UK life assurers in run-off in 2005 were over £136 billion, an increase of £1 billion on the previous year and representing 12 percent of the total UK life market. The increase would have been significantly larger had it not been for a number of large transactions in 2005 which had the effect of moving portfolios of business previously included in closed life assurers to active life assurers. More than £14.5 billion of capital is now tied up in UK life run-off business, an increase of some £3 billion on 2004.
Darryl Ashbourne, a Director in the KPMG Restructuring Insurance Solutions practice said:
"Policyholder liabilities in run-off increased from £75 billion to £136 billion in the period 2001 to 2005, an astounding 81 percent. Capital tied up in life run-off in the period 2001 to 2005 has increased significantly – from £4.2 billion to £14.5 billion, almost three and a half times."
UK run-off market – non-life insurance
In the UK non-life run off market, total liabilities at the end of 2005 (including Lloyd’s syndicates) are estimated at £38.2 billion, a reduction of £0.2 billion on 2004 figures. This represents 19 percent of the non-life market compared to 23 percent in 2004. However, funds tied up in run-off increased by 20 percent from £4.0 billion to £4.8 billion. This market is substantial and the drive to more actively manage these books of business is evidenced by the continuing use of solvent schemes to achieve finality as well as the growth in the use of Part VII transfers.
In relation to solvent schemes of arrangement, Tony McMahon, partner in the KPMG Restructuring Insurance Solutions practice commented:
"Even though British Aviation Insurance Company ('BAIC') failed to obtain court sanction for its solvent scheme last year, schemes continue to grow in number, size and complexity. Important lessons have been learned from the BAIC decision and are now being reflected in the approach taken to schemes. Recently the Willis Faber Underwriting Management (‘WFUM’) pool scheme has also provided helpful guidance on certain aspects of best practice for solvent schemes. Solvent schemes are now a material feature of the non-life run-off market and those promoted but not effective before the end of 2005 account for some £500 million of liabilities."
Steve Goodlud a Director in the KPMG Restructuring Insurance Solutions practice said:
"For the first time, an analysis of Part VII transfers are included in the survey, and (like solvent schemes) their popularity has been increasing in recent years. There have been 34 such transfers for non-life portfolios since the procedure was introduced in 2001. The ability to include the reinsurance asset as part of the transfer has made them very attractive as a reorganisation tool."
The survey, which includes Lloyd’s business but excludes the UK business of companies from other EU countries, found the total liabilities of the Lloyd’s syndicates open years in run-off have reached £7.5 billion. This is now over £3 billion greater than Equitas, the vehicle established to deal with Lloyd’s 1992 and prior run-off business.
Philip Grant, Chairman of ARC concludes on both surveys:
"As ever, both the life and non-life surveys give some fascinating insights into the run-off sector. Of particular interest on the non-life side is how large Lloyd’s post-1992 run-off has become. In the life sector, it seems that the efficiencies of scale upon which many of the sector’s acquisitions have been predicated are indeed manifesting themselves, with administration costs showing a sharp reduction."
You can access the survey by clicking here.
