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  #31  
Old 12-18-2017, 08:07 AM
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Originally Posted by fastcount View Post
Hello,

The problem is I don't have any idea where to start.
As the quoted replies below tell you: runoff is like any other insurance business in that it needs specific expertise to be done well.

I assume your company has no experience in runoff, given your OP, so it kinda begs the question: "What are you guys thinking?".

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Originally Posted by Westley View Post
This isn't where the value in acquiring runoff P/C businesses usually comes from (it can add a small amount, but the economies of scale isn't really the driver, it's expertise). P/C has lots of value driven by quality of claims management on sophisticated coverage issues - there's very little parallel in the Life space, where you're trying to decide whether coverage applies, what the policy language actually was (completely possible that there is no longer a copy of the policy anywhere, and everybody is just guessing at the language, which will determine whether and how coverage applies), and what limitations determine the payout, how other policies and coverages apply and share in costs. When the company is in runoff, it's a struggle to keep talented claims people (and the people who were handling claims when the policies were written may be retired by now), and if the acquirer has such expertise (companies like Tawa, Enstar, Randall and Quliter, for example - pretty sure there's a sub of Berkshire doing this now too), then that's a big value driver for the acquirer. Claims expertise isn't the only value driver, but is the largest by far in the transactions I've been involved in.


OP, would recommend that you look through some of the IR and other public info from those companies as a start. Also, there's a session at the 2016 CLRS (maybe this link works? http://cas2016clrsiframe.azurewebsit....aspx?id=85977 ) if link doesn't work, it's called "Runoff book sale considerations" and presenters were Bill Miller, Brian Brown and Thomas Norsworthy, all of whom would be worth searching on their own.
Lots of critical points highlighted above, especially on individual claims, plus whole-company portfolio of claims in P/C, and P/C reinsurance. A number of the issues Westley raises as challenges to the runoff manager are also what put P/C companies into runoff e.g. ancient, ambiguous policy wording or nonexistent wording so a court decided.

You will also need expert negotiators because sometimes it boils down to how deep the discount you can squeeze is on a portfolio of claims to settle now rather than stretching out negotiations over years.

Quote:
Originally Posted by Arlie_Proctor View Post
My question would be, "what is the business case for acquiring a run-off management company?" Depending on the answer to that question, the approach to the problem will differ substantially.

- Do you want to better manage your own run-off? If so, you're safer simply adding the right skills rather than acquiring an existing book of liabilities.
- Do you want to acquire new run-off books (and this could be from a liability or claims management standpoint)? It can be done and there are some success stories out there, but you're competing with the reinsurance industry and National Indemnity is pretty darned good at writing adverse development covers and LPTs.
- Do you want to integrate the additional knowledge into your organization?
- Other?
These Q's are the best place to start, and I again assume management gave you a steer on these before tasking you to research runoff...?

I would add: does your company's strategic vision and management/operational culture embrace the concept of being a runoff manager? Not many insurance companies do.
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  #32  
Old 12-18-2017, 08:15 AM
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Alternatively, you have no idea how much money has been made (by the other side of the largely zero-sum trade) by this attitude.

Caveat emptor.
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  #33  
Old 12-18-2017, 09:25 AM
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Quote:
Originally Posted by Westley View Post
...This isn't where the value in acquiring runoff P/C businesses usually comes from (it can add a small amount, but the economies of scale isn't really the driver, it's expertise). P/C has lots of value driven by quality of claims management on sophisticated coverage issues...Claims expertise isn't the only value driver, but is the largest by far in the transactions I've been involved in...
Another non-trivial driver is that tax treatment of reserves can be funky, and sometimes you can gain financially by moving reserves to a jurisdiction with more favorable tax treatment.
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  #34  
Old 12-18-2017, 09:50 AM
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Originally Posted by Colymbosathon ecplecticos View Post
If you wrote a one-year term policy in 1980, you would be pretty unlikely to learn of a new claim this year, right?
If there's waiver of premium on the policy then it happens all the time. Person became disabled in 1980 and dies in 2017 and you're paying a claim today on a one-year term policy issued in 1980 where you have received no premium on the policy other than the 1-12 months you got back in 1980. You would, however, know that there was an approved waiver claim on the person so it's not perfectly analogous to things like liability claims on the P&C side.

Quote:
If you wrote ten consecutive one-year term policies starting in 1980 an a single life, it is unlikely that they would all produce claims from a single event, right? Especially if you thought that you were only covering death, but now the courts have decided that coughing triggers coverage.
If we're talking group insurance, then sure. 10 people (or heck, 10,000 people if you want) became disabled during the 10 years that the policies were in force and then 9/11 happens and wipes out the building where they're working part time. Far fetched, but possible.

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Originally Posted by Colymbosathon ecplecticos View Post
Just the fact that you think of business in terms of premium says a lot. What if that $100m of business really should have been $1B of business, but you priced it wrong?
Gargoyle didn't mention premium... you did. Perhaps Gargoyle meant $100m of reserves? Anyone can mis-price anything any time in any line of business. And yeah, Long Term Care is a great example.

Quote:
Originally Posted by Westley View Post
This isn't where the value in acquiring runoff P/C businesses usually comes from (it can add a small amount, but the economies of scale isn't really the driver, it's expertise). P/C has lots of value driven by quality of claims management on sophisticated coverage issues - there's very little parallel in the Life space
Claims management is huge in disability... paramount really. And I don't know too much about it, but I suspect it probably comes into play on health as well.

Regular old life insurance that just pays a death benefit when you die? Yeah, not so much, though again, it can be quite relevant for waiver of premium.

Waiver of Premium is a small piece of the puzzle with individual life insurance, but it's a huge piece of a mature block of group life insurance.
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  #35  
Old 12-18-2017, 01:59 PM
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Originally Posted by fastcount View Post
Hello,

I work in the business development side of my company and we're currently interested in acquiring a company that specializes in acquiring run-off businesses.

The problem is I don't have any idea where to start.
What on earth is the motivation for your company to do this? Perhaps the company which acquires run-off business knows what it is doing, but it seems to me there are any number of business your company could invest in... Why invest in something risky like this?
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  #36  
Old 12-18-2017, 01:59 PM
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Quote:
Originally Posted by Shaft View Post
As the quoted replies below tell you: runoff is like any other insurance business in that it needs specific expertise to be done well.

I assume your company has no experience in runoff, given your OP, so it kinda begs the question: "What are you guys thinking?".
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  #37  
Old 12-18-2017, 03:33 PM
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Quote:
Originally Posted by fastcount View Post
Hello,

I work in the business development side of my company and we're currently interested in acquiring a company that specializes in acquiring run-off businesses.

The problem is I don't have any idea where to start.

Does anyone have any experience working in this industry? Would you be able to share any industry papers on how it works? Why it's profitable? Etc.

Much help appreciated.

Cheers,
FastCount
Is the company acquiring run-off businesses in the form of loss portfolio transfers (LPTs)?
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  #38  
Old 12-18-2017, 10:55 PM
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Quote:
Originally Posted by Arlie_Proctor View Post
My question would be, "what is the business case for acquiring a run-off management company?" Depending on the answer to that question, the approach to the problem will differ substantially.

- Do you want to better manage your own run-off? If so, you're safer simply adding the right skills rather than acquiring an existing book of liabilities.
- Do you want to acquire new run-off books (and this could be from a liability or claims management standpoint)? It can be done and there are some success stories out there, but you're competing with the reinsurance industry and National Indemnity is pretty darned good at writing adverse development covers and LPTs.
- Do you want to integrate the additional knowledge into your organization?
- Other?
These are all good questions attacking the critical topic of "why do we want to do this?", but that's not the first question I personally would ask.

In any potential acquisition (be it company, underwriting team, book of business, etc being acquired), the very first question I would ask is "why is this [thing] available for acquisition?"

The answer to that question, run by a sensitive BS-detecting nose, will either quickly kill an acquisition without need of further work, or it will illuminate other questions that need to be asked.

Runoff business is a very specialized business, and it takes a particular set of knowledge/skills to do well. It would not surprise me at all to learn that Uncle Warren has hired most, if not all, of the folks in North America who have that set of knowledge/skills.

And to get back to the OP's original question...if you're looking at this from a business development angle, and if the questions suggested above haven't been sufficient to illuminate an answer, then I would suggest finding and retaining a consultant who's had more exposure to the runoff marketplace, and picking their brains for a day for insight.
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  #39  
Old 12-19-2017, 03:29 AM
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Rather than acquiring a company that specializes in runoff, why not utilize their services? Companies like mine (Enstar) buy legacy portfolios and allow carriers to release the supporting capital.

PM sent.

Gabriel
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  #40  
Old 12-19-2017, 09:30 AM
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Default A few more thoughts on runoff

I agree on the importance of Maphisto's question: Why is this business available for acquisition? To which I will add: Why doesn't the original company want to keep it? What do they know that you don't? Could it be that they know case and IBNR reserves are woefully inadequate, and they know very well the business will develop much worse than past patterns would predict?

Someone commented on the difficulty of keeping talented claimspeople employed to settle runoff claims. How will claimspeople be incentived? Will they be encouraged to settle questionable claims to get off them off the books - if so, that is another reason the business will develop much worse than past patterns would predict.

Don't ignore underwriters. Someone needs to interpret policy language and intent, and the original underwriters are probably no longer around.
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