Ever since the days of Lloyd´s Coffee House, London has been the centre of the insurance and reinsurance world.

On his first day at school a young boy was asked by his teacher what his father did for a living. The boy had heard a lot of stories from his father, who worked for a European reinsurance company that had been in run-off for some years, so his reply was simple: “Firstly my father travels around the globe selling insurance, then he is home for a while, followed by another trip around the globe. However, this time, he is buying back the insurance at a cheaper price”. This is an excellent description through the unclouded eyes of a child of how the real run-off market works.

Ever since the days of Lloyd´s Coffee House, London has been the centre of the insurance and reinsurance world. First came Lloyd´s and then the Company market, and both flourished until the late eighties, when large “spiral” losses developed within the market. Syndicates at Lloyd´s that had always believed they would never become insolvent were shaken to their very foundations. Then came the brilliant idea to form the huge runoff company Equitas, whose sole purpose was to reinsure syndicate liabilities for all underwriting years up to and including 1992. For the first time some of the ongoing syndicates at Lloyd´s had corporate rather than private investors, which enabled them to continue to write new business. Good profits were made, yet remarkably Lloyd´s total liabilities in run-off amounted to GBP 7.2 billion as at the end of 2004 (almost double Equitas’ total liabilities of GBP 4.6 billion). Several open debates have taken place in London over the past six months extolling the competitive advantage that London has in the run-off industry, since so much expertise (underwriters, lawyers, accountants, actuaries and other consultants) is located in London. Certainly there are many very good actuaries and lawyers. Another advantage is the highly developed legal system in the UK, which sets the guidelines by which international reinsurance works.

The discussions in London did not mention the run-off experience that has been built up with blood, sweat and tears in the Nordic countries. London was not the first place to develop active run-off through commutations in the early nineties, it was companies in the Nordic countries who first took this forward. These companies had been writing business from the London market for many years whilst at the same time founding subsidiaries in London, effectively underwriting the same risks. The losses can be counted in billions of pounds, since the spiral losses hit the Nordic market twice. To a large extent, companies in the Nordic region chose to handle their run-off internally, which they have done with great success. Excellent examples are Oslo Re (Storebrand International) in Norway, Wasa Run-Off (Stockholm Re/Wasa International) in Sweden, Alma (Tapiola), Bothnia (Pohjola) and ST International (Sampo) in Finland and also more recently Copenhagen Re in Denmark. This has led to the development of a lot of knowledge and expertise in how to manage an efficient run-off which includes subsidiaries in London. Consequently the Nordic companies have much to offer to both continental Europe and London when it comes to run-off expertise. A very good example is Wasa Run-Off in Sweden, which was the first company to transfer a portfolio from a UK company into a Swedish company under the new EU rules, and also now provides advice to Luap (Folksam International in liquidation) in London. Perhaps the London market should follow the example of the English Football Association who employed a Swedish Viking as coach - he has indisputably done a very good job. Nordic Vikings were not hooligans, in reality they were very skilled tradesmen, leaders and administrators.

In the past few years there have been rumours that a number of insurance companies on the continent have old run-off portfolios hidden away. Continental companies do not usually officially admit that they have old business in run-off. However, this is likely to change because of Gerling and Gothaer Re as well as recent developments in the French market. Continental insurance companies have traditionally been reluctant to buy services from outside consultants, especially if they come from the London market, because this is where the business was produced in the first place. An ideal partner would therefore be a company from a Nordic country, which has many years of experience of global reinsurance. In Germany, Gothaer Re is already In the past few years there have been rumours that a number of insurance companies on the continent have old run-off portfolios hidden away. cooperating in run-off matters with Wasa Run-Off in Sweden.

In London, run-off providers’ co-operate through their organisation (ARC); and in France a new run-off organisation (SEGS) has been founded. Surely, it is now time for the creation of a European run-off organisation that will develop the European run-off market and work alongside with ARC and SEGS. Nowadays it is not only the London Market that calls the shots.

This Special item appeared in issue 108 of JTW News - September 2006

Author: Johan Lagerwall - Wasa Insurance Run-off Co Ltd