UK run-off market shrinking – KPMG

Total liabilities of the UK non-life run-off market fell by 21% to £29.7bn in 2009 from £37.4bn in 2008, according to accounting firm KPMG’s annual run-off survey. The survey also found that the composition of the run-off market is changing, with long-tail liabilities being replaced by shorter-tail claims.

The decrease in UK non-life run-off liabilities in 2009 was mainly driven by the appreciation of the UK pound against the US dollar and the euro, as well as the releases of reserves following claims settlements, commutations and/or favourable claims development, the survey found.

Total capital tied-up in solvent UK non-life companies in run-off decreased by almost £1.2bn to £4.2bn. This was mainly due to the impact of the financial crisis on monoline insurers’ balance sheets and successful extraction of surplus capital through statutory capital, dividend distribution and other mechanisms.

The KPMG survey also found that many of the long-tail asbestos, pollution and health hazard (APH) liabilities, which have long affected the London run-off market are being eliminated through accelerated settlement and being replaced by shorter-tail claims.

However, the firm said that despite the reduced liability and shorter-0tail nature of claims, challenges remained.

“While this year’s report shows that liabilities have shrunk due to the impact of exchange rate movements and favourable claims development, it seems inevitable that the substantial pressures faced by the industry – in a continuing environment of macro-economic uncertainty - will increase the size of UK non-life run-off liabilities in the short to medium term,” said Mike Walker, head of KPMG’s Restructuring Insurance Solutions practice.