“Trying to explain the concept of run-off to your mother and your children is an almost impossible task. The key issue is that you cannot explain what run-off is without using the words run-off which defeats the object.” Oliver Horbelt, Centre Solutions

It was a choice which met with the approval of the vast majority of delegates at the recent AIRROC Rendez-Vous in Meadowlands, New Jersey who said the ability to keep the key participants at close quarters was one of the attractions.

The opening dinner saw delegates told of the success of the event and AIRROC in particular. AIRROC chairman Andrew Maneval said the event’s popularity was an indication of the need for the market to continue to communicate.

Since its formation with 23 member companies, in the space of two years that figure has grown to 55 corporations and the desire for the association to keep growing.

He said: “We need to continue to increase both the size and the scope of the association and we are developing the link with the life and accident and health company participation which we believe with be another significant step forward for the association.”

Maneval added: “There are a lot of things that we can do as AIRROC, but there is one key role we play - to facilitate communication and debate and networking amongst all in the industry. It is only by doing that can we all come together and collaborate in finding the solutions to the problems we as an industry have yet to solve.”

He continued, “run-off is there to deliver the ability to move quickly and efficiently and to use capital to the best and most profitable use or to manage the obligations that our companies have undertaken in the past.

“We can be in no doubt that run-off is now an integral and essential part of the insurance and reinsurance business and will continue to grow in importance.”

Run-off takes off:
Keynote speaker at the event was set to be Praetorian Financial Group chief executive officer Rod Fox, but unfortunately he was forced to withdraw at the eleventh hour.

However Tom Norsworthy, chief executive officer of Trenwick American Corp (Kenning Financial) took to the stage to deliver his thoughts on the state of the run-off market.

Norsworthy told delegates that there was little doubt that the run-off market was now a major part of the global economy and there was every likelihood that it would continue to increase. He added that financial and regulatory pressure saw more companies looking to cease underwriting to change their strategies in terms of the class in which they participated.

“It is estimated that the run-off market now controls some $1 trillion of capital which represents around two percent of global GDP,” he said. “When you look at the figures the runoff market is a significant part of the global insurance and reinsurance market and there is every expectation that it will continue.”

Norsworthy added that the continued pressure on companies by regulators across the world will increase the need for underwriters to take decisions on whether they remain committed to certain lines of business, as the need for return on capital became ever more important coupled with the demand for higher solvency limits.

Add to that the tough line taken by the ratings agencies in terms of the speed with which they will downgrade and the demands from brokers for A rating before ratings triggers kick in means that business will continue to pile up for run-off experts, explained Norsworthy.

He added that as the market increases so will the scrutiny on those which carry out the business of commutation and run-off.

He said the market demands the highest levels of professionalism, independence and the delivery of a service which is transparent.

Norsworthy also warned that unless the market delivers it will face the problems of attracting hedge fund and private equity capital into the sector at a time when the need for additional capital is not just confined to the run-off sector.

Norsworthy's views were echoed by many delegates who claimed the run-off market's reputation as being the poor relation of the live insurance market was now becoming a vibrant sector and with it the interest of the major investors.

Person of the year:
The talk on the opening day of the conference was of the announcements that Berkshire Hathaway had acquired Converium's North American operations.

While this news did not deflect from their core aims of meeting clients, it gave delegates another topic of conversation.

In keeping with tradition, another member of the run-off fraternity was named as the “AIRROC Person of the year”, sponsored by DLA Piper Rudnick.

This year the award went to Oliver Horbelt, president and chief executive officer of Centre Solutions. Swiss-born Horbelt said he as honoured by the award, but added it may not impress his family. “Trying to explain the concept of run-off to your mother and your children is an almost impossible task,” he told delegates. “The key issue is that you cannot explain what run-off is without using the words run-off which defeats the object.” He said there were still those in the industry who were unaware of what run-off was all about and its role. “When I was offered the role of leading the run-off operations at Centre I was approached by one of my colleagues on the day I announced I was to resign from my previous position,” he said. “My colleague took me aside and told me that taking the job may not be the best idea as they had ceased to underwrite new business!”

He added that despite the size of the current market there was still more that could be done as a group. He thanked the association for the award adding; “Playing is fun, playing and winning is more fun, so I thank you all.”

Food for thought:
The face-to-face meetings at the gathering were interspersed with a range of sessions headed by some of the market's leading experts.

One of the most hotly debated was the session on the enforceability of reinsurance agreements against receivers. The debate hinged on when a contract is a binding one and the issues surrounding the hopes of enforcing agreements on the receivers. It saw a clearly polarised debate and as one delegate said: “It gives me some food for thought for the plane home”.

Visitors to New York City on the Monday found Fifth Avenue turned into a wasteland as Hollywood icon Will Smith filmed scenes for his new blockbuster entitled “I am legend”.

It saw the city's main shopping street overgrown with weeds and plans in a futuristic thriller and with Smith shooting a scene where he charges out of the store of major fashion house brandishing an automatic weapon.

While there was no sign of any firearms at the Sheraton Meadowlands, the conference hotel, it was clear to delegates that the biggest danger the run-off market faces is to let the grass grow under their feet.

The AIRROC event is now firmly established as a major meeting of the market, but it is indicative of the determination to get down to business that the delegates are happy to be locked away in an isolated venue which enable them to focus on the task at hand rather than the attractions of the bright lights of the Manhattan skyline a few short miles away.

This Feature item appeared in issue 110 of JTW News - November 2006

Author: Jon Guy - JTW News