Commutations, Loss Portfolio Transfers, and Assumptions for Runoff

Captive Operations & Services | Steven McElhiney | President & CEO | EWI Re, Inc.

Steve McElhiney, president and CEO of EWI Reinsurance, explains that different core reinsurance transactions may be employed to manage runoff liabilities depending on what drives the transaction. If an insurance company goes into liquidation, liabilities are paid off on a pro-rata basis. As a proactive measure, a reinsurer may look to approach the insurer to transact a negotiated settlement. Such a negotiated transaction can take the form of a commutation of reinsurance recoverables. A loss portfolio transfer allows an insurance company to carve out a portion of its business for a variety of reasons, such as a strategic exit or windup, and transfer these liabilities to a counterparty in exchange for payment. An assumption agreement transfers out a company's entire book to unwind all transactions by making a reinsurer directly liable to the insured for in-force risks by effecting a novation.