Why Reinsurance Transactions for Runoff Are Attractive to Reinsurers

 
Captive Use Trends & Innovations | Steven McElhiney | President & CEO | EWI Re, Inc.

Runoff and related transactions present attractive opportunities for reinsurance counterparties, according Steve McElhiney, president and CEO of EWI Reinsurance. There are some specialist parties that are very active in the runoff space, such as Berkshire Hathaway. Capital markets look to get more involved in runoff transactions. The overall attraction for reinsurance counterparties has to do with investment return on insurance premium float and the ability of their specialist claims operations to settle claims quickly and effectively to support profitability. The overall track record on these transactions for counterparties has been good for generating significant underwriting profits and investment income. Nonetheless, these transactions bring a lot of risk in the form of mispriced transactions and potentially uncollectable reinsurance. Runoff transactions are actuarially driven and require a deep-level claims file review to adequately examine claims that are incurred but not reported.