trending Market Intelligence /marketintelligence/en/news-insights/trending/curj50nk2agyr7qj0jukza2 content esgSubNav
In This List

Industry awaits milestone insurance biz transfer deal under new regs

Blog

The Big Picture 2022 Insurance Industry Outlook

Podcast

Next in Tech | Episode 37: Insurance impacts on technology and vice versa

Case Study

A Prestigious Global Business School Gains a Competitive Edge

Video

S&P Capital IQ Pro | Unrivaled Sector Coverage


Industry awaits milestone insurance biz transfer deal under new regs

A regulatory trend aimed at attracting runoff insurance business could lead to a deal rush and one new company hopes to be the first to mine the opportunity.

Rhode Island in 2015 changed its insurance regulations to make it easier for companies to sell closed blocks and have them serviced in the state, an adjustment patterned after a U.K. regulation that paved the way for numerous such transactions, observers say.

Among other provisions, the Rhode Island law compels all policyholders in U.S. runoff lines to accept transfers of their business if a certain majority percentage of policyholders agrees to the change.

Pro Global in 2017 set up ProTucket Insurance Co. specifically to service business transferred to Rhode Island under the new regulatory scheme, according to president and CEO Mory Katz. Pro Global has been a runoff lines acquirer and established ProTucket to apply its experience serving closed blocks whose risk is being acquired by third-party reinsurers, Katz said in an interview.

"We've taken a leap into this market because we believe in it," he said. ProTucket can effectively accept the runoff as an insurance company and apply Pro Global's experience in servicing closed lines, Katz said.

"We set up what we consider to be a full-service operation," he said.

ProTucket expects to be the first to file a transaction under the insurance business transfer regulation with a prospective client looking to transfer what Katz described as a "very large," long-tailed propert and casualty line, he said.

A recent PricewaterhouseCoopers insurance survey priced the domestic inventory of nonlife runoff insurance lines at about $350 billion. More than two-thirds of respondents indicated that they are likely to restructure or exit business lines. A third of those who expect to do so favor the insurance business transfer method, the type of deal Rhode Island hopes to attract with its Regulation 68 amendment.

The U.K. has drawn such transfer deals under a regulation known as Part VII, which has enticed tens of billions of dollars in restructuring deals since it took effect in 2000, according to the PwC report on the survey released Jan. 18.

Companies tend sell closed blocks to free up capital or when the lines are no longer part of their strategic plans, said Michael Millette, founder and CEO of Hudson Structured Capital Management Ltd.

MarshBerry adviser Gerard Vecchio said elevated capital requirements under Europe's Solvency II regulations have also driven sales of closed blocks that companies previously did not mind servicing.

"That resulted in some of these companies saying, even if it costs me money to sell this to someone who will run it off for me, that might be a better alternative to have to put up more capital just to keep it in existence," Vecchio said in an interview.

The first successful use of the transfer regulation in the U.S. could bring more deals domestically that might have otherwise have been settled in the U.K., he said.

"If that law is starting to make some traction, and there are more companies taking advantage of it, there are more likely to be more domestic sales rather than just offshore sales," Vecchio said.

The PwC survey indicated that the insurance industry is anxiously awaiting the first successful insurance business transfer deal out of Rhode Island. But there is some reluctance among companies to be the one that takes the initial leap, according to the report.

"Whilst (re)insurers do not like to get too far out in front, they also hate being left behind," PwC said.

Katz is confident ProTucket will break that ground with the deal in its pipeline. After that, he anticipates an "avalanche."

"That's the thinking behind behind why we got into it, and why we wanted to take a first-mover approach," he said.