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  #51  
Old 12-21-2017, 10:44 PM
Westley Westley is offline
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Yes Bermuda *may* be a tax play but it can actually be a disadvantage. Bermuda is as close as you can get to no taxes, and that’s one reason why profitable underwriters like it. For runoff, there’s plenty of scenarios where you make money but show an accounting (and tax) loss, so you want that to happen in a high-tax environment (to offset other profits). And a company with Bermuda HQ might leave such biz in a US (or wherever) sub for that reason. The tax play is very complicated. Bermuda is IME more about expertise and regulation as tax.
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  #52  
Old 12-22-2017, 09:48 AM
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every once in a while for me has been about 10% of the time

due diligence findings for me usually boil down to finding out that the claims are grossly under-reserved and and the other party won't meet our price for taking them on. we need enough money from them to cover case, IBNR, reopened claims potential, profit.

the last deal we did was very much in our favor, but the other party had desires that went beyond just financial ones. they needed a clean break from their past for other reasons.
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  #53  
Old 12-22-2017, 10:10 AM
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PeppermintPatty PeppermintPatty is offline
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Quote:
Originally Posted by yoyo View Post
every once in a while for me has been about 10% of the time

due diligence findings for me usually boil down to finding out that the claims are grossly under-reserved and and the other party won't meet our price for taking them on. we need enough money from them to cover case, IBNR, reopened claims potential, profit.

the last deal we did was very much in our favor, but the other party had desires that went beyond just financial ones. they needed a clean break from their past for other reasons.
I've never actually priced a block of runoff business (from either side) but I used to price close outs of old retro policies. Which is a similar sort of thing on a much smaller scale. And what yoyo says is typical of how those went.

If the client was an ongoing concern, it generally believed it's liabilities were less than I thought they were. Often, its idea of what they would cost was so much less that even taking into account the very nontrivial expense of servicing the retro every year, there wasn't a mutually agreeable price for a close out.

If the client wanted to clean up its books, say, because it was looking to sell the company, there was often a mutually beneficial price to be found.
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  #54  
Old 12-22-2017, 10:28 AM
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Originally Posted by PeppermintPatty View Post
I've never actually priced a block of runoff business (from either side) but I used to price close outs of old retro policies. Which is a similar sort of thing on a much smaller scale. And what yoyo says is typical of how those went.

If the client was an ongoing concern, it generally believed it's liabilities were less than I thought they were. Often, its idea of what they would cost was so much less that even taking into account the very nontrivial expense of servicing the retro every year, there wasn't a mutually agreeable price for a close out.

If the client wanted to clean up its books, say, because it was looking to sell the company, there was often a mutually beneficial price to be found.
one of the things i've learned over the years is that every company thinks their claims handling is better than industry average. i have never heard "we are worse than industry average"
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  #55  
Old 12-22-2017, 01:15 PM
fastcount fastcount is offline
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Originally Posted by Westley View Post
Yes Bermuda *may* be a tax play but it can actually be a disadvantage. Bermuda is as close as you can get to no taxes, and that’s one reason why profitable underwriters like it. For runoff, there’s plenty of scenarios where you make money but show an accounting (and tax) loss, so you want that to happen in a high-tax environment (to offset other profits). And a company with Bermuda HQ might leave such biz in a US (or wherever) sub for that reason. The tax play is very complicated. Bermuda is IME more about expertise and regulation as tax.
By regulation, I assume you mean the less onerous capital and reserving requirements than in other jurisdictions.

Could you please elaborate by what you mean by expertise?

Once the business stops showing a loss, would it get moved to bermuda? and vice versa (if a company that's profitable in bermuda starts showing loss, would it get moved to a US subsidiary?) Are there regulations on how often can a business be moved back and forth?
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  #56  
Old 12-22-2017, 03:09 PM
Westley Westley is offline
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Expertise. Bermuda has a high concentration of insurance execs, attorneys, actuaries, service providers, etc. all in a very close proximity. P

No regulations against multiple moves tha I’m aware of but eventually the irs will notice and call to ask what you’re doing. You will not enjoy that conversation AT ALL.
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  #57  
Old 12-22-2017, 07:43 PM
fastcount fastcount is offline
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Default A few more general questions

Most of the companies I've researched in this space acquire p/c runoff businesses are enstar, tawa, white mountains, armour, and they do it in US and Europe. I haven't been able to find a Canadian one yet.

Are there similar companies that also do the same thing on the life side? health side?

Is p/c market for this bigger than life/health?

What are some companies that do this in Canada?

Cheers,
fastcount
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  #58  
Old 12-22-2017, 09:41 PM
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Not much to add, but great thread
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  #59  
Old 12-23-2017, 12:24 AM
Harbinger Harbinger is offline
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Quote:
Originally Posted by fastcount View Post
A lot of you have brought up due diligence. Could you provide some example of:
What are some things learnt in due diligence that prevent the deal from happening?
Claims are significantly under reserved
Claims are mishandled to the point there could be potential for ECO/XPL
ALAE leakage

Quote:
How often does a deal happen? Yoyo mentioned every once in a while. What I'm trying to determine is how often will days of hard work go to waste?
If the client wants to further explore a non-binding indication they’ll go to the due diligence phase and I would estimate at least 75% maybe even as high as 90% of the time your days of hard work will go to waste.

Quote:
I am assuming the deal occurs when the financial interests of the buyer and seller overlap kind of like in a venn-diagram, would anyone be able to provide a few bullet points of what those are for both the seller and the buyer?

Cheers,
fastcount
Seller:
Wants out of the LOB
Management wants to change focus
Capital relief
Wall Street perception for stock companies
Message to AM Best

Buyer:
Expect to make a profit
Large chunk of money today with float = lots of investment income
Expert claims handling can drive further profit
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  #60  
Old 12-23-2017, 11:30 AM
Abnormal Abnormal is offline
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Quote:
Originally Posted by fastcount View Post
Once the business stops showing a loss, would it get moved to bermuda? and vice versa (if a company that's profitable in bermuda starts showing loss, would it get moved to a US subsidiary?) Are there regulations on how often can a business be moved back and forth?
As Westley says, moving business back and forth is eventually going to draw the attention of the IRS. The solution really lies in structuring the deal so that profits and losses end up where you want them to - if you're working on some sort of intra-group retrocession it's really not that difficult.

However, if you're buying a company that's in runoff (or even a block of business) that's easier said than done - most of the transactions I've worked on have seen the company establish a limited liability sub that enacts the transaction - that way if things go pear shaped they can walk on the transaction.
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