The latest KPMG/ARC Run-Off Survey - Life Assurance and Non-Life Insurance 2007 - a survey produced annually by KPMG LLP (UK), and commissioned by The Association of Run-Off Companies Ltd (‘ARC’). The survey is now in its fifth year and is a benchmark for the industry, providing a detailed analysis of the size and developments within this sector.  

Non life: Download report PDF (2543k)
Life: Download report PDF (1202k)

Findings: UK run-off market
There were significant movements in the run-off sector in 2006. The non-life market saw a dramatic contraction in size, whilst the life market embraced substantial changes through mergers and acquisitions.

Proactive management of existing run-off portfolios, absence of new run-offs and the weak US Dollar combined to bring down total estimated liabilities in the UK non-life run off market (including Lloyd’s syndicates) to £32.7 billion at the end of 2006, a reduction of £5.5 billion on £38.2 billion at the end of 2005. As a percentage of total liabilities, run-off now represents 18 percent of the non-life market as a whole, slightly less than in 2005.

The life market saw a much smaller reduction in size, indicating a more stable market, however this masks a number of substantial mergers and acquisitions in the industry in the last 2 years. The transfer of over £40 billion of policyholder liabilities from closed life assurers to active companies and £100 billion in internal reorganisations demonstrates a real appetite for acquisition of new funds because of the attractions of huge investment portfolios and the returns in the form of efficiency savings that can be achieved from greater scale and focus. In 2006, the industry observed the first transfer of life business at Lloyd's - a small but significant transaction.

Comment: Mike Walker - KPMG's Head of Restructuring Insurance Solutions
“For the first time in the five years that we have been producing the survey, we have identified a significant contraction in the size of the UK non-life run-off market. The £5.5 billion decrease in total liabilities enforces the view that the UK is a centre for the pro-active management of runoff. It also reflects a growing appetite for finality. With over £418 million liabilities of non-life insurance business subject to solvent schemes of arrangement to the end of 2006, we have witnessed a threefold increase on the previous year, demonstrating the continued support for this exit mechanism.

In the life market, we are seeing elements of rationalisation as portfolios of business have been transferred out by consolidators where the risk profile does not fit with their business model. The survey also identified over £100 billion of liabilities transferred in the last 2 years within groups through internal restructuring using Part VII transfers. Additionally, 2006 saw the first transfer of life business from a Lloyd’s syndicate to an assurer outside the Lloyd’s market, demonstrating the willingness of Lloyds to consider such mechanisms.”