PriceWaterhouse Coopers has published an interesting report on a survey that it conducted relating to US run-off operations. The report covers various aspects of run-off operations and strategies. Especially combined with the recent Lloyd’s report on capitalization and operation of Lloyd’s run-off syndicates, which was the subject of a post on this blog on May 28, this makes interesting reading.
Reserves
Lloyds issues guidance for run-off syndicates
Lloyds has issued a report providing minimum standards and guidance for the individual capital adequacy of syndicates in run-off. This report provides extensive guidance for the management of such syndicates, in order to assist them in achieving the capital standards.
Court partially dismisses claims arising out of reserve dispute
Converium Holding, a Swiss reinsurance company, issued an IPO in December 2001. Converium's North American unit collapsed in September 2004 after four increases in reserves in a single year. Class action lawsuits followed, alleging that management had grossly misrepresented necessary reserves and failed to disclose reserve disputes with the company's outside auditor. The District Court dismissed claims against the IPO's underwriter and broker and claims against the company and individual defendants relating to the IPO, denying dismissal of certain other claims. In re Converium Holding AG Securities Litigation, Case No. 04-7897 (USDC S.D.N.Y. Dec. 28, 2006). This opinion illustrates the strategic problem of finding a solvent deep pocket in this type of situation, and discusses the “storm warning” doctrine, pursuant to which the Court found that the frequent increases to reserves, in increasing amounts, in a short period of time, put investors on notice of problems despite comfort statements by management.
Fourth Circuit upholds negotiated reserve allocation for long term care policies
The United States Court of Appeals for the Fourth Circuit affirmed a District Court decision granting summary judgment to a reinsurer, finding the negotiated contractual allocation of responsibility for complying the South Carolina's requirements for active life reserves for long term care policies was valid and enforceable, and not in violation of South Carolina law or public policy. Kanawha Insurance Corp. v. Employers Reinsurance Corp., Case No. 05-2206 (July 12, 2006).