Standley H. Hoch, FSA Chief Operating Officer and Chief Financial Officer CIGNA Reinsurance May 7-8,...
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Transcript of Standley H. Hoch, FSA Chief Operating Officer and Chief Financial Officer CIGNA Reinsurance May 7-8,...
![Page 1: Standley H. Hoch, FSA Chief Operating Officer and Chief Financial Officer CIGNA Reinsurance May 7-8, 2007 Run-off Considerations.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e245503460f94b11c02/html5/thumbnails/1.jpg)
Standley H. Hoch, FSA
Chief Operating Officer and
Chief Financial Officer
CIGNA Reinsurance
May 7-8, 2007
Run-off Considerations
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Overview
• Runoff Market
• Runoff Management
• Evaluating the Book of Business
• Risk Management
• Exit Strategies
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Overview
• Runoff Market
• Runoff Management
• Evaluating the Book of Business
• Risk Management
• Exit Strategies
![Page 4: Standley H. Hoch, FSA Chief Operating Officer and Chief Financial Officer CIGNA Reinsurance May 7-8, 2007 Run-off Considerations.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e245503460f94b11c02/html5/thumbnails/4.jpg)
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Runoff Market
• UK Life Assurance Cos in Runoff: 53 Companies with £136 billion of Liabilities
• UK Non-Life Cos in Runoff: £26 billion of Liabilities (excluding Lloyds)
• Continental Non-Life Cos in Runoff: €75 + billion of Liabilities
• Membership in AIRROC (US runoff org.): 53
companies
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Exit decisions may be driven by many different reasons
• Adverse loss experience
• Difficult pricing environment
• Increased regulatory requirements
• Changes in strategy or focus
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Management may perceive a sale of the business to be the best strategy:
• Frees up capital
• Avoids distraction
• Positive impact on share price
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But the sale of a discontinued business or product line may be difficult or quite costly
• Opportunity for profitable new business may be limited
• Customer base and infrastructure of minimal value
• Loss exposures difficult to quantify
• Regulatory issues or adverse publicity
• Buyers of distressed assets may demand a significant premium to reserves
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Overview• Runoff Market• Runoff Management• Evaluating the Book of Business• Risk Management• Exit Strategies
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Companies often decide to establish dedicated runoff administration
• May require specialized product/market knowledge and skills
• Different approach to external relationships than an active business
• Improve transparency and alignment around strategy
• Employee incentives can be tailored to the requirements of a runoff business
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Skills to Retain for Runoff Management
• Claims management and Audit
• Accounting, Financial reporting and Contract administration
• Reinsurance administration
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Skills to Strengthen for Runoff Management
• Program management
• Actuarial forecasting
• Reinsurance collections
• Dispute resolution
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Attracting and Retaining Employees for a Dedicated Runoff Management Unit
• Retention incentives tied to specific skills and product knowledge
• Some functions may be shared with other active businesses
• Some functions may be outsourced or supplemented with external resources
• Hiring from outside the business unit will bring a fresh perspective and help avoid conflicts of
interest
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Turn-key alternatives are available
• How much of the existing structure can be redeployed?
• How confident are you in your assessment of the liabilities?
• Importance/availability of risk transfer alternatives?
• Organizational capabilities/experience in managing
outsourced arrangements
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Overview
• Runoff Market
• Runoff Management
• Evaluating the Book of Business
• Risk Management
• Exit Strategies
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Access to records can be a significant issue for companies transitioning to runoff
• Claim and contract info should be fairly well organized and accessible
• What about email records? Underwriting files?• Do you have contracts written and/or administered
by MGUs? Are they still in business? Are they still talking to you?
• Who administers your reinsurance program?• What is their commitment going forward?• What is the quality, timeliness and level of detail of
the information being reported to you by ceding companies?
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Resources, models, methodologies and assumptions• Who’s the expert in evaluating your block of
business? • What do you need to know about the exposures
and how will you measure them (premiums, reported claims)?
• What information is available “in-house”? What do you need to seek elsewhere?
• Will you use expert information? Industry data? Broader economic models?
• How will you segment your book for experience analysis?
• How much individual contract information will you use (deductibles, limits, sunsets, commutation clauses, etc.)
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Planning for the future
• How frequently should you refresh the analysis?• What can you do to improve the data,
methodologies and overall analysis the next time around?
• How will you incorporate new/updated information into the analysis in the meantime?
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Overview
• Runoff Market
• Runoff Management
• Evaluating the Book of Business
• Risk Management
• Exit Strategies
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We’ve already talked about three important risk management initiatives
• Securing and enhancing program/contract documentation
• Ensuring access to the right people/resources/skills
• Developing a solid evaluation of claim and contract exposures
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Other areas to consider
• Strengthening regular claims review/adjudication/administration
• Enhancing audit scope/frequency/resources
• Dedicating additional resources to reinsurance collections
• Purchasing additional reinsurance for open exposures
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Ways to leverage risk management effectiveness
• Improving the effectiveness of ceding company/TPA claims management procedures
• Improving communications with ceding companies, TPAs, reinsurers and other business partners
• Using reserving/exposure studies to identify and prioritize segments of the portfolio with greatest potential for volatility
• Taking advantage of the “domino effect”
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Overview
• Runoff Market
• Runoff Management
• Evaluating the Book of Business
• Risk Management
• Exit Strategies
![Page 23: Standley H. Hoch, FSA Chief Operating Officer and Chief Financial Officer CIGNA Reinsurance May 7-8, 2007 Run-off Considerations.](https://reader033.fdocuments.in/reader033/viewer/2022061618/56649e245503460f94b11c02/html5/thumbnails/23.jpg)
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Readiness to exit
• Improved controls on claim administration and reinsurance collections
• Enhanced contract documentation and the quality and timeliness of financial data
• Comprehensive assessment of exposures and liabilities
• Addressed significant areas of uncertainty in the portfolio
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Wholesale strategies• Portfolio transfer by sale or reinsurance• Solvent Scheme of Arrangement (UK)
• Insolvency and Liquidation
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Considerations in pursuing wholesale strategies
• Length and credibility of loss history
• Impact on existing reinsurances
• Potential for cost reduction/redeployment of capital
• Buyer’s risk tolerance and capacity to absorb future adverse development
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Retail strategies• Claim commutations• Structured settlements• Contractual clauses
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Considerations in pursuing retail strategies
• Development methods may be difficult to apply due to limited history
• Assess open claims exposure and adequacy of case reserves
• Determine timing of expected cash flows
• Apply discounts for interest and mortality
• Evaluate exposure to new/reopened claims
• Consider contractual sunset and commutation clauses
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Windows of Opportunity may be important in executing a retail approach
• Addressing counterparty credit issues
• Resolving disputes
• Seeking administrative cost savings
• Simplifying complex arrangements
• Securing net settlements