Future of Runoff Industry

On October 15, 2013, Lloyd Gura of Mound Cotton Wollan and Greengrass moderated a panel led by Jim Moran of R&Q Liquidity Management, Ali Rifai of Zurich Centrally Managed Businesses, Steven Ryland of Armour Risk Management Ltd., and Frank DeMento of Crowell & Moring. The title of their presentation was, “The Evolution of the Run-Off Industry: A Prospective Look.”

The panel began by exploring recent changes in the run-off industry during the last five years. Such changes include the emergence of a few large run-off entities from a much larger pool of smaller entities, a large increase in the number of investors in run-off, and a diversification of business lines entering run-off.

The panel then moved on to discuss the current run-off market place. It was the consensus that long tail risks and capital efficiency drive the market. Run-off entities are assuming these long tail risks by portfolio transfers and purchasing entities or captives. However, the acquisition of run-off is becoming increasingly difficult as a result of increased regulation and reserving issues. Challenges for the legacy sector in the next twenty four months also include low interest rates, combining simple and complex claims operations, greater regulatory oversight, minimum capital requirements, the cost of overhead and operating expenses, legacy exposures freezing capital and increasing uncertainty, not to mention medical inflation.

The panel then moved from discussing the challenges facing companies with legacy business to discussing how to more efficiently manage internal blocks of run-off business, the benefits of properly managing run-off liabilities (capital extraction), and then offered solutions to regulatory challenges in the US, Europe and Bermuda. The panel concluded by focusing on the future of the legacy M&A markets in the US, UK, Continental Europe and beyond. The panelists offered advice on opportunities for growth and how to best develop untapped markets to drive future growth in the run-off industry. The run-off sector is growing and continues to draw the attention of companies and investors alike as the potential for capital extraction/capital efficiency increases opportunities to generate value from billions of dollars in reserves year over year.