London market should be doing a lot more to reclaim dormant loss fundsLondon market should be doing a lot more to reclaim dormant loss funds https://davies-group.com/wp-content/uploads/2018/11/Safe-1024x683.jpg 1024 683 Davies Group https://secure.gravatar.com/avatar/d0aa26dc093d061c174465ade6d109d3?s=96&d=mm&r=g
Hundreds of millions of pounds are sitting in dormant loss funds set up by underwriters via brokers and third party administrators. Insurers should be willing to recover these monies.
It is a big concern that firms seem unwilling, or unable, to examine how they recover their own money, which may have been sitting in third party accounts for some decades.
The scale of the monies resting in redundant loss funds is alarming. We estimate the total figure is around $500m. The London market is losing out on hundreds of millions of recoverable dollars, money insurers have paid to a third party but are now reluctant to request back.
In what has been described as a “new normal” of low underwriting rates, ever larger exposures and a struggling investment market, it is a big concern that firms seem unwilling, or unable, to examine how they recover their own money, which may have been sitting in third-party accounts for some decades.
Too often we hear re/insurers bemoan the inability to drive forward technical rates and despite the significant losses of the 2017 north Atlantic hurricane season, the talk of rate rises does not ring true.
Nevertheless, market talk is of hardening. But while rates have held firm, it has been at the expense of underwriters widening the cover they are willing to offer to maintain the premium level.
Neglected loss funds: There remains pressure to pay claims quickly and efficiently, but underwriters continue to neglect or properly manage the loss funds they created via brokers and third-party administrators (TPAs) to meet the cost of these claim. In our experience, the fact remains that even with the pressure on both top and bottom-line performance, there is a lot of apathy from re/insurers in the London market. Very simply do they take the issue anywhere near seriously enough or believe there is not a problem? If it is not on the balance sheets, it does not exist.
Everything we have learned during the past four years points to the fact there is still a lot more cash to be recovered. We have engaged with TPAs, brokers and lawyers and if we prove there are funds to repatriate, they will settle. We have worked with our clients to return more than $100m from these redundant loss funds.
The majority of what we have seen has been in the property and aviation markets, but it is clear these loss fund issues are mirrored in other classes of business across the London market. It takes a good degree of expertise and some determination to identify where these loss funds reside, but we believe, in terms of the amount to be recovered, we are on an upwards spiral as long as the market takes a more focused approach in terms of its willingness to recover these funds.
An additional benefit is that when the funds have been identified, the recovered claim can be closed, which will deliver greater certainty for underwriters when they are looking at their open cases and their reserving requirements.
It is the case that very few capacity providers manage these funds and as such, there are still hundreds of millions of dollars neither underwriter, nor their partner on the loss, have chosen to record or action a recovery.
The market has an untapped reserve of loss funds that are no longer needed to meet the costs of claims, which could be better deployed elsewhere on the company’s balance sheet. The frustrating issue is despite the challenges the market faces, there is no effort or enthusiasm to tackle the loss fund issue and the benefits they would deliver.
By Andrew Collery, Director at Davies Insurer & Market Services