DARAG run-off insurance
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The Art of Capital Release

Quick effectiveness
with the right form of transfer

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Quick effectiveness with the right form of transfer

The ceding insurer transfers inactive business (i.e. discontinued insurance business that no longer generates premium income), including outstanding and expected late claims, to a specialist insurer. In this process the technical provisions, the IBNR reserves and the covering assets are transferred from one insurance company to the other. In all countries, statutory regulations apply to transfers within the EU.

  • Economic finality: yes
  • Complete finality: yes
  • Risk reduction: prompt (after approval)
  • Release of capital: prompt
  • Applicability: Direct and reinsurance
  • Administrative costs: low
  • Risk of default: none
  • Reputational risk: dependent on the receiving risk carrier

If a legal entity (e.g. a subsidiary) is completely in run-off, its inactive business can be transferred through the sale of the entire legal entity. As part of the sale, the technical (run-off) provisions are transferred automatically.

  • Economic finality: yes
  • Complete finality: yes
  • Risk reduction: prompt (after approval)
  • Release of capital: prompt
  • Applicability: Direct and reinsurance
  • Administrative costs: none
  • Risk of default: none
  • Reputational risk: low

A loss portfolio transfer (LPT) simulates the transfer of a portfolio through a reinsurance contract. The gross reserves of the ceding insurer are fully reinsured retrospectively and thus ‘netted’ out.
Adverse development cover (ADC) neutralises all risks that have not yet been covered by the reserves. The combination of LPT and ADC is equivalent to a portfolio transfer.

  • Economic finality: yes
  • Complete finality: no
  • Risk reduction: immediately after signature is placed
  • Release of capital: immediate
  • Applicability: Direct and reinsurance
  • Administrative costs: high
  • Risk of default: to be monitored
  • Reputational risk: none

If necessary, the run-off instruments can be combined in order to create an optimal situation for the ceding insurer. For example, through retrospective reinsurance a portfolio can be transferred directly before the sale of a company is completed.

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