The different considerations and priorities for companies in run-off has led to the formation of the Association of Run-off Companies. Leslie Ann Giovnilli looks at why the association was formed and its role in the London market today.
One of the first companies to go into run-off in the London market was British & Overseas in the 1960s. Since that time, run-off has become a fast growth area to the extent that it is now regarded as a separate part of the market with its own statistics, specialists (service providers and insolvency practitioners) and its own department at the Financial Services Authority (FSA).
In 1988, certain claims adjusters within Lloyd's run-off vehicle, Syndicate Underwriting Management, attempted to raise interest in studying and sharing the concerns of those in run-off. This was unsuccessful, mainly due to the dominant status of Lloyd's syndicates in run-off compared to the smaller number of companies.
Another factor in this lack of success was the diversification of management views as to how run-off should be controlled. Many did not regard the change from live to run-off as one of any significance and continued to act as though still underwriting, but without the benefit of new premiums. Others, with their hard fought claims/reinsurance positions being, perhaps, held up for inspection by their peers, were not inclined to speak openly on their stance on market issues. Also, in the 1980s, the trend was very much “issue proceedings first, build your case second”.
Although the insurance company, Sphere Drake, made a second attempt to bring run-off practitioners together, this did not progress into any kind of formal action. However, in 1997, Eastgate (a service provider) and Scottish Lion (a liability carrier) arranged a meeting with other interested parties to discuss the possibility of forming a run-off association. With unanimous support from those present, they held an inaugural meeting in February 1998.
Initially, the main concerns were the many unilateral changes then taking place in the London Processing Centre (LPC). These changes did not necessarily benefit run-off members and in some ways were detrimental. The Association of Run-Off Companies (ARC), as it became, worked with the LPC, achieving some success in identifying run-off member companies' priorities.
LPC now has less onerous regulations where a run-off company may not have the same concerns as a live company and also provides for some flexibility of settlements, giving run-off companies a choice rather than requiring them to follow the dictates of live companies. Now represented on some LPC committees, ARC has been asked to participate in many of the LPC system and procedural changes.
The association's main goal is to improve the knowledge and strength of its members. For example, it has formed sub-committees looking at improving the speed of reinsurance recoveries, identifying redundant outstandings, co-ordinated debt recovery and letter of credit services.
In addition, it has begun working closely with the Association of British Insurers (ABI) and other market bodies on commutations. It is also considering the question of ABI and FSA reporting requirements, with the aim of allowing run-off companies to provide more relevant material and dispense with onerous and inappropriate information.
ARC has now developed to the point where its first commutations congress is organised and fully funded and its first publication (on commutations) is used by many as an essential reference guide. This year, it will be publishing a guide on inspections of records, as well as adding more information to the commutations manual.
Although ARC buys in administrative services, it is essentially run by volunteers, whose individual employers support the time they give to working for the benefit of run-off members. We believe that each committee and sub-committee member has a commitment to the association's beliefs of a collective view and communication above litigation.
The association has to rely on the goodwill of its members and its continued existence depends on providing a benefit to sponsors. Unlike some other industry associations, membership of ARC is voluntary. It is a choice to work with other market organisations to improve and control the remaining life of a company in run-off and to understand and maybe influence the changes taking place in the (re)insurance market.
Leslie Ann Giovnilli is secretary of the Association of Run-Off Companies. Tel: +44 (0)370 890948; fax: +44 (0)1284 788277; e-mail: firstname.lastname@example.org