US insurers to explore run-off

There is a lot of pent-up demand in the US insurance market for big carriers to place certain lines of business into run-off, which hasn’t really taken off in the same way it has in Europe, Artur Niemczewski, CEO of Pro Global, and Mory Katz, president and CEO of ProTucket, told Monte Carlo Today.

“Run-off is now an accepted business tool,” said Niemczewski. “If you are an insurer, it’s no longer a one-off, it’s part of doing business.”

He suggested there are carriers that can’t close down certain lines of business they discontinued—whether that was in the 1980s, 1990s or 2000s—in order to extract the capital.

PwC’s Global Run-off Survey published in May 2018 identified the US as the largest single discontinued non-life insurance market in the world, with an estimated value of $335 billion.

Respondents to the survey predicted that property & casualty, general liability and workers’ compensation will be the main lines of business that US insurers will look to dispose of over the next two years.

On September 10, Pro US Holdings contributed $35 million of funding to its insurance carrier ProTucket Insurance Company, established in Rhode Island to provide run-off transfer solutions in the US. The capital contribution was provided by funds obtained from Swiss Re.

Concurrently, ProTucket has created a new cell, which it intends to use for insurance business transfers (IBTs). Katz noted that the creation of this cell and its funding is a major step in allowing the first IBT in the US to take place.

Niemczewski provided an educated guess that there are $100 billion of legacy liabilities in the US to be transferred through these mechanisms.

Rhode Island introduced amendments to its Voluntary Restructuring of Solvent Insurers Law and its Protected Cell Companies Act, with the aim of making run-off transactions easier to execute. It allows domestic insurance companies to enter into a voluntary restructuring, which includes the use of a protected cell.

Niemczewski noted that a number of states, including Oklahoma, Connecticut, and Vermont, are also passing legislation to make run-off easier.

Eric Smith, president and CEO of Swiss Re Americas, said in a press release that he is following the development of IBT in the US very closely.

“We look forward to working with Pro to develop opportunities for our core clients as the IBT market gains a foothold in the US, providing new opportunities for capital management and increased capacity for expansion of insurance coverages,” said Smith.

Katz added: “Any capital tied up in run-off is inefficient, it’s not producing returns.

“Why would you want to tie up all that capital and all those people when there’s a mechanism to ditch it?”