Tawa's initial public offering is the latest sign that run-off is finally coming of age
Tawa’s initial public offering this week is another sign that the run-off industry is no longer a marginalised area of the reinsurance industry; rather it has become a self-sufficient industry of its own.
The company’s shares were admitted onto AIM this week with an initial placing price of 125p. Initial estimates suggest the placing raised approximately £20m for the company.
After expenses, this falls to a working capital figure of around £7m which, when added to its current capital, gives Tawa, valued at around £150m, around £12m to play with. And CEO Gilles Erulin makes it clear what he plans to do with this surplus capital: “This float should provide the proper basis for our acquisition focused strategy.”
The news comes after Capita revealed in July that one of its subsidiary’s, CMGL Syndicate Management, had formed a new Lloyd’s syndicate to write the reinsurance-to-close (RITC) of Duncanson & Holt Syndicate Management Limited’s Syndicate 55.
Jerry McArthur, managing director of Capita CMGL, said that this would not be the last time Capita looked to the run-off market for business opportunities: “This is an exciting step for Capita CMGL and the first transaction of its kind. We will continue to actively pursue opportunities to provide finality solutions to both Lloyd’s syndicates and companies.”
But the current hard market has caused the number of syndicates going into run-off to decline, according to some sources. Steve McCann, head of open years management at Lloyd’s, points out that the number of syndicate years of account supervised by the Open Years Management team fell from 102 in 2005 to just 90 in 2006. But he adds that this may all change in the future.
“We will continue to actively pursue opportunities to provide finality solutions to both Lloyd's syndicates and companies
Jerry McArthur, managing director of Capita CMGL
“Due to the current hard market, companies and syndicates are unlikely to want or need to enter run-off,” said McCann. “However it is likely that we’ll see more run-offs occurring once the market reaches its softer cycle.”
Meanwhile the latest solvent scheme of arrangement was also announced this month. Great Lakes, a wholly-owned UK subsidiary of Munich Re, entered into a scheme with its creditors in respect of its treaty reinsurance book of business written between 1 January 1988 and 1 October 2004.
It is, therefore, no surprise that Standard & Poor’s have announced plans to launch a ratings service to the run-off industry. The ratings are “intended to indicate the likelihood of recovery of principle from the reinsurer in run-off” according to S&P and will extend to portfolios within a company that may be in run-off, and any run-off subsidiaries within a live company or third party company.
However not everyone was convinced that a run-off rating scale was necessarily a great idea. Some questioned the impact such ratings would have on their exit strategies. “Ordinarily, in the live market, you’d expect people to want better ratings, but you’d reasonably expect the opposite in the run-off market,” said Ipe Jacob, senior partner in Grant Thornton’s financial markets group. “Ratings can only usefully inform prospective counterparties. So what’s the point in having an “AA” rating for your hotel if you know no one is coming to stay?”
What impact run-off ratings will have on the market remains to be seen but it is certainly a sign that run-off is coming of age.