In recent years, a number of companies have withdrawn from the market and
have placed their business into run-off.
Due to the nature of run-off, many companies become overwhelmed by the level
of claims emerging from historical underwriting or by the need to focus on new
priorities in a run-off situation. Coupled with poor management, this can
eventually cause the company to slip from run-off into insolvency. It is very
difficult for shareholders or a parent company to exit the insurance industry
while maintaining both reputation and capital.
PwC has considerable experience in developing and implementing run-off
strategies and in creating innovative and practical solutions to reduce
liabilities and achieve finality for both solvent and insolvent companies in
run-off. We work either on a stand-alone basis or as part of multi-disciplinary
teams with PwC’s business recovery and insurance operations specialists.
How we can support
you
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Potential issues
- You are concerned about the nature of liabilities in run-off and the
potential for future deterioration, including deterioration from previously
unknown insureds, particularly as it could result in insolvency
- You are not sure of the value of principal-level balances on inwards and/or
outwards accounts in commutation situations
- You find it difficult to extract capital from the business in run-off
and/or are concerned about the effect of regulatory requirements for capital
affecting ongoing underwriting in other parts of a group
- You are worried about the recoverability of outwards reinsurance
- You think that the level of future administration costs will affect the
ultimate release of capital to shareholders and/or the ultimate dividend
payable to policyholders in the event of an insolvency
- You are not sure of the requirements for a successful insolvent scheme of
arrangement, for life or non-life business, or the main issues that need to be
considered in operating a successful insolvency scheme.
How we can support you
- For solvent companies, by providing actuarial analyses of gross and
outwards reinsurance liabilities in order to gain a better understanding of the
run-off account and hence the likelihood of future deterioration (and the risk
of becoming insolvent)
- More detailed analyses of the gross account can value liability at a
principal level to assist in commutation negotiations with insureds
- Analysis of outwards coverages can value balances due from reinsurers to
assist in commutation negotiations and ultimately to alleviate cashflow
shortages
- Capital can be extracted by way of a Scheme of Arrangement which will apply
to all insureds after a successful vote, whether known or not. We can advise on
the design of such a scheme, including an analysis of the advantages and
disadvantages of allocation and submission schemes, as well as advising on any
statutory and regulatory requirements and liaising with the regulator and
acting as scheme actuary as required
- Alternatively, all liabilities can be transferred to a purchaser via a sale
of shareholder funds or a business transfer. We can conduct actuarial due
diligence for either vendors or purchasers as well as identifying potential
purchasers and conducting independent expert reports to facilitate business
transfers
- For insolvent companies, the most likely route to achieving finality is via
an insolvent crystallisation scheme. We can again advise on the design of such
a scheme and can act as scheme actuary in such situations.
PwC’s insolvencies & run-off solutions include
- For solvent companies, advice on appropriate run-off strategies, including
pro-active run-off via commutations, sale, reinsurance or Scheme of
Arrangement
- Assistance with the preparation and development of a business plan
outlining the run-off strategy for FSA approval
- Assistance in commutation discussions on inwards and outwards
liabilities
- Evaluation of gross liabilities, including exposure-based APH analyses and
complex investigations into long-tailed non-APH claims
- Allocation of liability estimates down to a policyholder level by way of
sophisticated allocation approaches
- Provision of advice on the nature and extent of outwards reinsurance covers
to help achieve optimum recoveries from reinsurers
- Advice on statutory and regulatory issues for the exit route chosen
- For insolvent companies, provision of all actuarial services including up
front reserving advice, assistance in recovering reinsurance asset via
discussions with reinsurers
- For insolvent companies, sophisticated actuarial approaches to insolvent
Schemes of Arrangement (including assistance in negotiations with individual
creditors where appropriate).
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