Surveys > The ARC/KPMG UK Non-Life Run-Off Survey 2007
10 October 2007
Non-life insurance run-off market contracts by over 14%, according to survey
• Total liabilities in UK non-life run-off have decreased by £5.5 billion
• Capital tied up in UK non-life run-off has increased to £4.9 billion
London, EMBARGOED until 00.01 Thursday 11 October, 2007: 2006 was a year of significant change in the UK non-life insurance run-off market, according to the findings of the KPMG/ARC Run-Off Survey – Non-Life Insurance 2007. This is the fifth edition of the report which is produced annually by KPMG LLP (UK), and commissioned by the Association of Run-Off Companies Ltd (‘ARC’).
Proactive management of existing run-off portfolios, absence of new run-offs and the weak US Dollar combined to bring down total estimated liabilities in the UK non-life run-off market (including Lloyd’s syndicates) by over 14 percent to £32.7 billion at the end of 2006, a reduction of £5.5 billion on £38.2 billion at the end of 2005. As a percentage of total liabilities, run-off now represents 18 percent of the non-life market as a whole, slightly less than in 2005.
Mike Walker, partner in the KPMG Restructuring Insurance Solutions practice commented:
“For the first time in the five years that we have been producing the survey, we have identified a significant contraction in the size of the UK non-life run-off market. The £5.5 billion decrease in total liabilities enforces the view that the UK is a centre for the pro-active management of runoff. It also reflects a growing appetite for finality.”
The success delivered by run-off specialists has attracted a number of new investors to the run-off market, which is testified by the landmark acquisition of Equitas by Berkshire Hathaway. The challenge for stakeholders will be generating, accessing and utilising the surpluses tied up in legacy portfolios.
Walker continues “With over £418 million liabilities of non-life insurance business subject to solvent schemes of arrangement to the end of 2006, we have witnessed a threefold increase on the previous year, demonstrating the continued support for this exit mechanism.”
Steve Goodlud a Director in the KPMG Restructuring Insurance Solutions practice said:
“Our survey also demonstrates that the popularity of Part VII transfers, like solvent schemes, is continuing and these are widely used finality tools for stakeholders. There have been 20 Part VII transfers for non-life portfolios in 2006 alone, 13 of which were predominantly discontinued business. This is more than the total number of Part VII transfers involving non-life portfolios completed prior to 2006. 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 shrunk to £5.2 billion. Goodlud continues “Lloyd’s has continued to innovate its approach to run-off liabilities, including amending the ‘reinsurance to close’ rules and adopting the Part VII transfer mechanism. However, we are yet to see solvent schemes at Lloyd’s.”
Philip Grant, Chairman of ARC concluded:
“This survey shows that the legacy management sector in the UK is doing a tremendous job of closing out discontinued business portfolios. However, it must now build on that success by expanding its offering into new areas. The new lines of legacy business will not be the same as the toxic portfolios of old. To preserve the brand and reputation of their original carriers they will need a different, less aggressive approach to management. They will also run off more quickly, which means service providers will have to rethink pricing structures and resourcing. Adapt or die is the watchword of every business sector. Given the nature of our work, legacy management professionals have less excuse than most for failing to recognise this need.”
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For further press information, please contact:
Jonathan Sollitt-Davis, KPMG Corporate Communications
Tel +44 (0) 20 7694 2471 Email: Jonathan.Sollitt-Davis@kpmg.co.uk
Fiona Gibson or Zoe Pocock, Haggie Financial LLP
Tel + 44 (0) 20 7417 8989 Email: fiona.gibson@haggie.co.uk or zoe.pocock@haggie.co.uk
Notes to Editors:
• The term ‘run-off’ refers to insurance companies that continue to operate by paying out or settling claims but are no longer active in accepting new business. The survey considered information from 480 of the 550 general insurance firms authorised to write general insurance business.
• The non-life survey shows that the total liabilities of the UK non-life market including Lloyd’s are estimated at £185.7 billion.
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About KPMG:
KPMG is the global network of professional services firms who provide audit, tax and advisory services. KPMG LLP operates from 22 offices across the UK with over 10,000 partners and staff. KPMG in the UK recorded a turnover of £1.45 billion in the year ended September 2006. KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.
About the Association of Run-Off Companies Ltd (ARC)
The Association of Run-off Companies Ltd is the UK market body for insurance and reinsurance legacy management professionals. It now has some 200 members. Originally set up in 1998 by a founding membership of senior claims representatives from London Market companies, the membership has grown and broadened to include companies worldwide which wrote business in the UK.
ARC’s key objectives [PRIDE] are to:
• promote excellence within the run-off sector
• raise awareness of key run-off issues affecting the discontinued and live insurance sectors and respond to members demands and market changes
• improve and build cooperation internationally by liaising with government, regulatory and market bodies outside of the UK
• distinguish its education programme by increasing the expertise and skills of the run-off sector
• expound its members’ interests to government, regulatory and insurance market bodies
Further information on ARC is available at: www.arcrunoff.com
You can access the survey by clicking here.
