Run-off
Sponsored Links
This presentation is the property of its rightful owner.
1 / 28

Standley H. Hoch, FSA Chief Operating Officer and Chief Financial Officer CIGNA Reinsurance PowerPoint PPT Presentation


  • 88 Views
  • Uploaded on
  • Presentation posted in: General

Run-off Considerations. Standley H. Hoch, FSA Chief Operating Officer and Chief Financial Officer CIGNA Reinsurance May 7-8, 2007. Overview Runoff Market Runoff Management Evaluating the Book of Business Risk Management Exit Strategies. Overview Runoff Market Runoff Management

Download Presentation

Standley H. Hoch, FSA Chief Operating Officer and Chief Financial Officer CIGNA Reinsurance

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Run-off Considerations

Standley H. Hoch, FSA

Chief Operating Officer and

Chief Financial Officer

CIGNA Reinsurance

May 7-8, 2007


  • Overview

  • Runoff Market

  • Runoff Management

  • Evaluating the Book of Business

  • Risk Management

  • Exit Strategies


  • Overview

  • Runoff Market

  • Runoff Management

  • Evaluating the Book of Business

  • Risk Management

  • Exit Strategies


  • Runoff Market

  • UK Life Assurance Cos in Runoff: 53 Companies with £136 billion of Liabilities

  • UK Non-Life Cos in Runoff: £26 billion of Liabilities (excluding Lloyds)

  • Continental Non-Life Cos in Runoff: €75 + billion of Liabilities

  • Membership in AIRROC (US runoff org.): 53 companies


  • Exit decisions may be driven by many different reasons

  • Adverse loss experience

  • Difficult pricing environment

  • Increased regulatory requirements

  • Changes in strategy or focus


  • Management may perceive a sale of the business to be the best strategy:

    • Frees up capital

    • Avoids distraction

    • Positive impact on share price


  • But the sale of a discontinuedbusiness or product line may be difficult or quite costly

    • Opportunity for profitable new business may be limited

    • Customer base and infrastructure of minimal value

    • Loss exposures difficult to quantify

    • Regulatory issues or adverse publicity

    • Buyers of distressed assets may demand a significant premium to reserves


  • Overview

  • Runoff Market

  • Runoff Management

  • Evaluating the Book of Business

  • Risk Management

  • Exit Strategies


  • Companies often decide to establish dedicated runoff administration

    • May require specialized product/market knowledge and skills

    • Different approach to external relationships than an active business

    • Improve transparency and alignment around strategy

    • Employee incentives can be tailored to the requirements of a runoff business


  • Skills to Retain for Runoff Management

  • Claims management and Audit

  • Accounting, Financial reporting and Contract administration

  • Reinsurance administration


  • Skills to Strengthen for Runoff Management

  • Program management

  • Actuarial forecasting

  • Reinsurance collections

  • Dispute resolution


  • Attracting and Retaining Employees for a Dedicated Runoff Management Unit

    • Retention incentives tied to specific skills and product knowledge

    • Some functions may be shared with other active businesses

    • Some functions may be outsourced or supplemented with external resources

    • Hiring from outside the business unit will bring a fresh perspective and help avoid conflicts of interest


  • Turn-key alternatives are available

    • How much of the existing structure can be redeployed?

    • How confident are you in your assessment of the liabilities?

    • Importance/availability of risk transfer alternatives?

    • Organizational capabilities/experience in managing outsourced arrangements


  • Overview

  • Runoff Market

  • Runoff Management

  • Evaluating the Book of Business

  • Risk Management

  • Exit Strategies


  • Access to records can be a significant issue for companies transitioning to runoff

    • Claim and contract info should be fairly well organized and accessible

    • What about email records? Underwriting files?

    • Do you have contracts written and/or administered by MGUs? Are they still in business? Are they still talking to you?

    • Who administers your reinsurance program?

    • What is their commitment going forward?

    • What is the quality, timeliness and level of detail of the information being reported to you by ceding companies?


  • Resources, models, methodologies and assumptions

    • Who’s the expert in evaluating your block of business?

    • What do you need to know about the exposures and how will you measure them (premiums, reported claims)?

    • What information is available “in-house”? What do you need to seek elsewhere?

    • Will you use expert information? Industry data? Broader economic models?

    • How will you segment your book for experience analysis?

    • How much individual contract information will you use (deductibles, limits, sunsets, commutation clauses, etc.)


  • Planning for the future

    • How frequently should you refresh the analysis?

    • What can you do to improve the data, methodologies and overall analysis the next time around?

    • How will you incorporate new/updated information into the analysis in the meantime?


  • Overview

  • Runoff Market

  • Runoff Management

  • Evaluating the Book of Business

  • Risk Management

  • Exit Strategies


  • We’ve already talked about three important risk management initiatives

    • Securing and enhancing program/contract documentation

    • Ensuring access to the right people/resources/skills

    • Developing a solid evaluation of claim and contract exposures


  • Other areas to consider

    • Strengthening regular claims review/adjudication/administration

    • Enhancing audit scope/frequency/resources

    • Dedicating additional resources to reinsurance collections

    • Purchasing additional reinsurance for open exposures


  • Ways to leverage risk management effectiveness

    • Improving the effectiveness of ceding company/TPA claims management procedures

    • Improving communications with ceding companies, TPAs, reinsurers and other business partners

    • Using reserving/exposure studies to identify and prioritize segments of the portfolio with greatest potential for volatility

    • Taking advantage of the “domino effect”


  • Overview

  • Runoff Market

  • Runoff Management

  • Evaluating the Book of Business

  • Risk Management

  • Exit Strategies


  • Readiness to exit

    • Improved controls on claim administration and reinsurance collections

    • Enhanced contract documentation and the quality and timeliness of financial data

    • Comprehensive assessment of exposures and liabilities

    • Addressed significant areas of uncertainty in the portfolio


  • Wholesale strategies

    • Portfolio transfer by sale or reinsurance

    • Solvent Scheme of Arrangement (UK)

    • Insolvency and Liquidation


  • Considerations in pursuing wholesale strategies

    • Length and credibility of loss history

    • Impact on existing reinsurances

    • Potential for cost reduction/redeployment of capital

    • Buyer’s risk tolerance and capacity to absorb future adverse development


  • Retail strategies

    • Claim commutations

    • Structured settlements

    • Contractual clauses


  • Considerations in pursuing retail strategies

    • Development methods may be difficult to apply due to limited history

    • Assess open claims exposure and adequacy of case reserves

    • Determine timing of expected cash flows

    • Apply discounts for interest and mortality

    • Evaluate exposure to new/reopened claims

    • Consider contractual sunset and commutation clauses


  • Windows of Opportunity may be important in executing a retail approach

    • Addressing counterparty credit issues

    • Resolving disputes

    • Seeking administrative cost savings

    • Simplifying complex arrangements

    • Securing net settlements


  • Login