U.S. insurance industry facing obstacles to run-off

The U.S. insurance industry should be paying greater attention to the run-off market, according to a recent study published by PricewaterhouseCoopers’ (PwC) insurance restructuring group.
Although the U.S. market is generally acknowledged as the largest in the world, with an estimated US$150-200 billion in reserves, run-off as a stand-alone business is less mature, PwC says in a press release. Furthermore, recent high-profile exits from the U.S. underwriting market have put a spotlight on liabilities being held by insurance companies to meet their obligations from legacy underwriting (“run-off liabilities”).
In order to get a better understanding of the current trends in run-off management, PwC asked a group of property and casualty insurance and reinsurance companies with discontinued insurance operations across the U.S. about their run-off management strategy and their plans for the future of this substantial business.
The study shows companies are having success strategizing plans for managing their run-off, but are facing obstacles with the implementation of effective operational plans to meet these goals.
A key factor that measures whether run-off liabilities are a primary focus for an insurance organization is the extent to which separate strategic plans and financial forecasts have been created for the run-off operations, PwC states in a press release announcing the study. More than eight in 10 (83%) of respondents indicated that strategic plans are in place for their run-off operations. In most cases, those plans are supported by financial forecasts, and management and staff are measured by whether they attain the goals set out in the financial model.
Despite the desire to achieve finality, study respondents acknowledged difficulties in doing so. Their challenges included:
The impact of adverse claims development on the enterprise.
The ability to retain and motivate staff members who are key to the effective management of the run-off.
Increased reinsurer scrutiny of run-off cessions, or the reinsurers’ own inability to meet their reinsurance obligations.
The ability to gain finality to the companies’ assumed liabilities.
The ability to conclude commutations with ceded reinsurers.