Run-off liabilities drop to £28bn.
The total liabilities of the non-life run-off market fell by a massive 15% to £28.3bn in 2007, according to the latest figures from KPMG.
The consultant said the reduced liabilities were due to the increased number of “reinsurance to close” transactions at Lloyd’s, the limited number of significant run-offs coming into the market and the rise in run-offs through settlements thanks to more proactive management of discontinued business.
Mike Walker, partner and head of KPMG’s Restructuring Insurance Solutions practice, said: “Capital efficiency is a boardroom mantra and in the current climate many companies – both live and in run-off – are increasingly looking at ways of restructuring in order to optimise their capital structures.
“These figures suggest that, while the run-off market is managing down its liabilities effectively, the challenge remains for the market as a whole as to how best to access, release or redeploy trapped capital.”
The survey showed increasing support for schemes of arrangement among insurers: 27 were deployed in 2007 and that number will rise significantly in 2008, KPMG said.
The study also found that shareholders are increasingly using the disposal process to extract cash from companies in run-off.
The crisis in the credit market does not appear to have affected the market for run-off business. The survey also suggested that Solvency II was high on the agenda for businesses in run-off.
Steve Goodlud, director of KPMG’s Restructuring Insurance Solutions practice, said: “Solvency II is a clear factor driving some aspects of strategy for businesses in run-off. If they have not already done so, time is running out for companies to meet the challenges and opportunities that the Solvency II regime will bring.”