outstrip Equitas liabilities, says KPMG study
post-1993 runoff liabilities climb
UK Run-Off Survey - Non-Life Insurance
September 8, 2005 12:00am
LLOYD'S ventures have built up more run-off liabilities in the last dozen years, than the volume of run-off remaining in Equitas, writes James Brewer.
Equitas is the vehicle created to save the market from collapse from disastrous 1992 and prior underwriting, and has been settling some of its biggest obligations recently.
At the end of 2004, total liabilities of syndicates in run-off for 1993 and subsequent years of account were GBP7.2bn ($13bn), according to a survey by KPMG, the accountancy group which advises on corporate recovery.
At Lloyd's this is a reduction of GBP500m on the previous year, but the figure being dealt with by Lime Street practitioners is now much higher than the discounted liabilities of GBP4.6bn (undiscounted GBP6.4bn) at Equitas.
Run-off involves books of business either naturally discontinued, or where businesses collapse.
KPMG, which was commissioned to conduct the survey by the Association of Run-Off Companies, said that as in 2003, the largest proportion of run-off liabilities at Lloyd's related to the 2001 year of account, in which there was a significant level of US casualty and World Trade Center loss.
Overall, the UK run-off market reduced in size by 6% measured by total liabilities of GBP38.4bn, mainly as a result of continued efforts by Equitas to eliminate its US asbestos and environmental exposures.
Many of the Lloyd's cases are being handled by outsourced providers, and there is provision for transferring run-off outside the market, although that has yet to occur.
Steve McCann, head of open years management at Lloyd's, has been strengthening procedures and improving ways of monitoring performance of providers.
<Lloyds List -- 09/08/05>< Copyright ©2005 Informa Martime Trade and Transport. For reprints, please contact Informa Martime Trade and Transport.>
By Sarah Veysey
The total amount of liabilities of Lloyd's of London syndicates in runoff but not reinsured into Equitas Ltd. now exceeds the liabilities of Equitas, according to a study of the runoff market conducted by KPMG L.L.P. in conjunction with the Assn. of Runoff Companies.
According to the study, the total liabilities of Lloyd's runoff syndicates at the end of 2004 were £7.2 billion ($13.82 billion), compared with the total liabilities of Equitas-the runoff reinsurer for the pre-1993 longtail liabilities of Lloyd's of London syndicates-which stood at £4.6 billion ($8.83 billion).
Steve Goodlud, a director in KPMG's corporate recovery insurance solutions unit, said most of the runoff liabilities of Lloyd's syndicates stem from the 2001 year of account, which includes losses from the Sept. 11, 2001, terrorist attacks in the United States.
The total liabilities of the nonlife runoff market in the United Kingdom in 2004 are estimated at about £38.4 billion ($73.72 billion), according to the study, down £2.7 billion ($5.18 billion) from 2003.
For reprints of this article contact Karen B. Porter at Business Insurance, 740 N. Rush St., Chicago, IL 60611-2590, (312) 649-5319, Fax (312) 280-3174; or Crain Communications Inc., email email@example.com
KPMG's complete report can be downloaded at: http://www.kpmg.co.uk/services/cr/ins/pubs.cfm
Table 2. Main components of the UK Non-Life Run-Off Market
KPMG LLP (UK) 2005, Lloyd’s
At the end of 2004, the total liabilities of Lloyd's syndicates in run-off in respect of 1993 and subsequent years of account were £7.2 billion across 104 open syndicate years. This is a reduction of £0.5 billion on 2003, and exceeds Equitas’ total (discounted) liabilities of £4.6 billion (undiscounted £6.4 billion).
As in 2003, the largest proportion of run-off liabilities at Lloyd's relates to the 2001 year of account, in which there remains a significant level of US casualty and World Trade Centre related losses.
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