Insurance company runoff operations are encountering increased scrutiny from reinsurers and regulators, according to a consulting firm survey.

The study of 60 U.S.-based insurers by PricewaterhouseCoopers in New York found that the industry is dealing with some aspects of runoff management fairly well, while struggling with other aspects. The report was written by Andrew Rothseid, a PWC partner.

Eighty-three percent of respondents indicated strategic plans are in place for their runoff operations. In most cases, those plans are supported by financial forecasts, and performance of management and staff is measured by whether they attain the goals set out in the financial model, PWC found.

The report noted that 67 percent of those surveyed said their runoff operations are not required to file any plan with regulators, even though they are under greater scrutiny

Eight in 10 respondents said they hoped to gain finality to assumed exposures as a top goal. Removal of volatility from their portfolios and minimizing claims settlement amounts were also named key goals.

The survey also found that outsourcing of runoff management appears to be more focused on specific specialized tasks, rather than outsourcing the management of the entire portfolio. In addition, approximately one third of respondents indicated that they outsourced either their claims or IT functions post-runoff.

Relationships with regulators appear to be sound, said PWC.

Challenges to runoff operations were listed as:

oThe impact of adverse claims development on the enterprise.

oThe ability to retain and motivate staff who are key to the effective management of the run-off.

oIncreased reinsurer scrutiny of run-off cessions or the reinsurers' own inability to meet their reinsurance obligations.

oThe ability to gain finality to the companies' assumed liabilities.

oThe ability to conclude commutations with ceded reinsurers.

Special Reports /

Runoff Operations Get Reinsurer Scrutiny, PWC Says

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