P&C “run-off” companies the new “specialty insurers”: Conning

The global property & casualty “run-off” market developed to meet insurers’ need to divest noncore operations and has become an important extension of the insurance markets in recent years, according to a new study by Conning Inc., an investment management company for the global insurance industry.

“The property-casualty insurance run-off markets have evolved rapidly in recent years from single-purpose acquisition vehicles with minimal capital to balance sheets that boast multi-billion-dollar run-off reserves,” said Gerard Vecchio, director of insurance research at Conning, in a press release on Monday.

Vecchio added that today’s complex run-off business models may incorporate various components, including completion of highly leveraged acquisitions, aggressive claims handling, forced commutations and separating acquisitions into liquidation-only businesses versus profitable renewal books. “In effect, the run-off specialist has become another form of specialty property-casualty insurer focused on specific long-tailed lines of business with an expertise in claims management,” he said.

The Conning study, called Run-Off: The New Specialty Insurer—A Diamond in the Rough or Tip of the Iceberg?, examines the evolution of the p&c run-off market, including factors that are driving the maturation of the market. It also analyzes seller considerations in the divestiture of noncore operations. Conning concludes this study with a discussion of factors that could lead to further consolidation in the run-off industry.

Steve Webersen, head of insurance research at Hartford, Conn.-based Conning, added in the release that “looking forward, the nonlife insurance run-off markets are poised to transition once again as Solvency II accelerates consolidation among property casualty insurers, and the adoption of a ‘live’ business renewal model by some run-off specialists create an even more active M&A market for discontinued operations.”