“There comes a time in the affairs of a man when he has to take the bull by the tail and face the situation.” – W.C. Fields

Total reserves in run-off continue to grow at an amazing rate. In 2000, Swiss Re estimated that the value of the world wide run-off market was at $180 billion. This past year GE Insurance Solutions estimated that the figure had increased to $360 billion. The legacy exposures that are considered common to support these figures; asbestos, pollution and health hazards, have been supplemented by more recent phenomena, finite risk reinsurance and natural disasters.

In the US in particular, there is little, if any, regulation to address these types of risks. Regulators look to the risk based capital ratios of companies when deciding when to intervene. As a consequence it is argued that there is minimal transparency for the stakeholders of discontinued books that would allow each to appreciate the level of risk remaining.

Perhaps in an effort to explore the range of options available to regulators, Connecticut insurance commissioner Susan Cogswell created a task force last Autumn to study the need and, if appropriate, composition of any such legislation. The task force report was issued in April.

While not as daunting an experience as facing the bull once he is grabbed by his tail, a review of the report may be a first step in bringing legislative order to a long-standing issue.

This Feature item appeared in issue 106 of JTW News - June 2006

Author: Andrew Rothseid - PricewaterhouseCoopers